Although taking out a personal loan may not be your primary objective, there are circumstances where these loans can be quite beneficial. You might find yourself in need of funds for significant expenses such as home repairs, your child’s orthodontic work, or purchasing a new vehicle for commuting. Additionally, personal loans are commonly utilized for consolidating debt, as they generally offer lower interest rates compared to credit cards.
One of the main advantages of personal loans is their high predictability. Unlike credit cards, which can have fluctuating interest rates, personal loans typically feature fixed interest rates, consistent repayment periods, and unchanging monthly payments. (See also: 5 Instances When Personal Loans Are Preferable to Credit Cards)
Personal loans are often accessible without accompanying fees. However, these loans are generally reserved for individuals with good, very good, or excellent credit, usually defined as FICO scores above 670. In fact, those with superior credit ratings—FICO scores exceeding 740—are in the best position to obtain the most favorable rates and terms, as noted by myFICO.
If you have good to excellent credit, chances are you can secure a personal loan that doesn’t impose fees that inflate the overall cost. Below are the fees you should aim to avoid. (See also: 8 Fees You Should Stop Paying Immediately)
1. Application Fees
While many personal lenders do not impose application fees, some may. These fees are meant to cover the expenses of evaluating your application and setting up your loan, and they typically are non-refundable.
It’s best to seek out lenders who waive application fees entirely. Even better, look for lenders offering pre-qualification without a hard credit inquiry, allowing you to assess your likelihood of approval without adversely affecting your credit score.
2. Origination Fees
In addition to application fees, many reputable lenders charge origination fees, which are costs associated with arranging your loan. These charges can differ among lenders and even with the same lender based on your creditworthiness and other variables. In some cases, they can reach as high as 8 percent of the loan amount. For example, Lending Club, a peer-to-peer lender, states their origination fee structures depend on a consumer’s credit score, ranging from 1 to 6 percent of the loan total.
The positive aspect is that numerous lenders do not charge these fees. If your credit score qualifies you for lenders without origination fees, it’s advisable to choose this option.
3. Prepayment Fees
Prepayment penalties are charges levied against borrowers who pay off their loans ahead of schedule. Ideally, you should seek a personal loan that does not impose extra charges for early repayment, as these fees are unnecessary and penalize responsible financial behavior.
Regardless of your credit profile, always avoid personal loans that penalize you for paying off your debt sooner than required.
4. Late Fees
Most lenders will charge late fees if your payment arrives post the due date or beyond any provided grace period. These fees generally hover around $40 each, but if you frequently pay late, the costs can accumulate rapidly.
To mitigate late fees, it is wise to devise a strategy for timely monthly payments. You could mark the due date on your calendar, set up phone reminders, or automate your payments. Some lenders even offer discounts for setting up automatic payments, allowing you to save money while ensuring you never miss a due date.
5. Returned Check Fees
Many lenders impose a fee if your check is returned for any reason, such as insufficient funds. These fees can vary, typically falling between $15–$25 per bounced check.
To circumvent returned check fees, ensure you have adequate funds to cover your personal loan payment. Alternatively, consider making payments online via direct bank transfers, which are faster and eliminate the risk of postal delays.
How to Shop for a Personal Loan
Now that you’re informed about the fees to steer clear of, you may be wondering how to identify which lenders charge fees and which don’t. Your best approach is to take time to compare various lenders based on interest rates, fee structures, and additional factors. The ideal lenders for personal loans provide options without fees and frequently allow pre-qualification without completing a full application or triggering a hard credit inquiry. (See also: The Right and Wrong Ways to Utilize a Personal Loan)
To find the ideal personal loan for you, use this convenient comparison tool. Input your desired loan type, amount, credit rating, and state to view the best available options.
