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The best personal loans offer flexible repayment terms with lower interest rates than credit cards, which is why they have grown in popularity over the past couple of years.
Accessing a personal loan is arguably easier than ever, due to the rise of online lending platforms and marketplaces that make it easy to find a loan based on your income, credit score and your borrowing history. And because newer, more disruptive financial startups tend to have fewer restrictions than big banks, some companies may even consider non-traditional data points when evaluating your loan application.
Upstart, for example, looks at your highest level of education attained, among other unique factors.
While it may be faster and easier to get a personal loan these days, especially if you have good credit and a stable income, they still come with costs like any credit product, ranging from the APR to other hidden charges.
Up front, we outline some common personal loan fees and how much they might 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 balances decrease as you repay your loan, interest is broken down into smaller chunks and paid each month in addition to your principal payment.
There are two types of APR:
- Fixed APR: With a fixed-rate APR, you fix an interest rate for the life of the loan, which means your monthly payment won’t 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’ve recommended on our list of the best have fixed-rate APRs, 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 you’re comfortable with the fact that your monthly payments will change if rates go up or down.
Personal loan APRs average 9.34%, according to the most recent Fed data.
Origination fees are 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 is sometimes charged as a flat fee. For example, if you took out a $20,000 loan and there was a 5% origination fee, you will only receive $19,000 when you get your funds. Your lender would get $1,000 from the loan on top, and you’ll still have to repay the full $20,000 plus interest.
It’s best to avoid assembly fees if possible. Having a good to excellent credit rating helps you qualify for loans that don’t charge origination or administration fees. None of the lenders on our list of best personal loans charge borrowers an upfront fee for processing your loan.
You will be charged late fees 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 for bank processing. However, policies regarding late fees vary for each lender, so it’s important to review the terms and conditions.
These lenders on our list of best personal loans do not charge late fees:
However, making late payments on your loan means that you will continue to pay interest on a higher balance, making it more difficult to repay 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 prepayment penalty. Since lenders expect to receive interest for the entire term of your loan, they may charge you a fee if you make additional payments to pay off your debt faster. The fee could be equal to either the remaining interest you would have owed, a percentage of your winnings balance, or a flat rate.
The lenders on our top list do not charge borrowers for prepaying loans. This means that if you have the ability to pay off your loan sooner and get out of debt faster, you won’t be charged a fee to get out of debt faster.
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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.