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The best personal loans offer flexible repayment terms with lower interest rates than credit cards, which is why they have become increasingly popular in recent years.
Accessing a personal loan is arguably easier than ever, due to the rise of online lending platforms and markets that make it easier to find a loan based on your income, your credit rating. and your borrowing history. And because newer, more disruptive financial start-ups tend to have fewer restrictions than big banks, some businesses may even consider non-traditional data points when assessing your loan application.
Upstart, for example, examines your highest level of education achieved, among other unique factors.
While it might be faster and easier to get a personal loan these days, especially if you have a good credit rating and a stable income, they still come with costs like any credit product, ranging from from the APR to other hidden costs.
Upstream, we define some common personal loan fees and explain how much they could cost you.
Common personal loan fees
Your interest rate – APR (Annual Percentage Rate) – is the monthly amount you pay to borrow money. The APR is expressed annually, but because the balances decrease as you pay off your loan, the interest is broken down into smaller chunks and paid each month on top of your principal repayment.
There are two types of APRs:
- APR at fixed rate: With a fixed rate APR, you lock in an interest rate for the life of the loan, which means your monthly payment will not vary, making it easier to plan your budget.
- Variable rate APR: Variable rates fluctuate with the Fed’s prime rate and can go up and down over the life of your loan.
Most of the personal loans we recommended on our list of the best loans come with a fixed rate APR, so your monthly payment stays the same for the life of the loan. In some cases, you can take out a variable rate personal loan. If you go this route, make sure that you are comfortable with changing your monthly payments whether the rates go up or down.
Personal loan APRs are on average 9.34%, according to the most recent data from the Fed.
The origination fee is a one-time upfront fee that your lender subtracts from your loan to pay for administration and processing fees. It is usually between 1% and 5%, but sometimes it is billed as a flat rate. For example, if you took out a loan of $ 20,000 and there was a 5% origination fee, you would only receive $ 19,000 when you got your funds. Your lender would get $ 1,000 of the loan, and you will still have to pay back the full $ 20,000 plus interest.
It is best to avoid origination fees if possible. Having a good to excellent credit rating helps you qualify for loans that don’t charge any origination or administration fees. None of the lenders on our list of the best personal loans charge borrowers an upfront fee for processing your loan.
You will be charged a late fee if you do not make your payments by the due date. Sometimes there is a grace period of one to five days after the due date, to allow bank processing. However, policies regarding late fees vary for each lender, so it is important to review the terms and conditions.
These lenders on our list of the best personal loans do not charge late fees:
However, if you make late payments on your loan, you will continue to pay interest on a higher balance, making it harder to pay off your loan in a timely manner.
The other two lenders on our list, PenFed and Discover Personal Loans, charge late fees ($ 29 and $ 39, respectively).
Some lenders charge a prepayment or a prepayment penalty. Since lenders expect to receive interest for the life of your loan, they might charge you a fee if you make additional payments to pay off your debt faster. The charge could be equal to either the remaining interest you are owed, a percentage of your refund balance, or a flat rate.
The lenders on our top list do not charge borrowers for prepayment of loans. This means that if you have the ability to pay off your loan sooner and get out of debt faster, you won’t have to pay fees to get out of debt faster.
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