Common Personal Loan Fees & Charges

Personal loans are a useful source of financing for many borrowers. Interest rates tend to be well below what you’d pay using a credit card. They’re usually unsecured, unlike mortgage loans that put your property on the line. And you can use personal loans for nearly anything you want.

However, personal loans can come with unexpected fees. And some lenders charge more than others. This guide explains some of the common fees to watch out for when applying for a personal loan and comparing lenders.

 5 Common personal loan fees

Loan origination fees

Loan origination fees are likely the most common type of fee. You’ll pay this fee upfront when you borrow.

What is an origination fee?

A loan origination fee is charged when you first take out a loan. Its purpose is to cover the costs that lenders face to underwrite and process the loan.

An origination fee is usually charged as a percentage of the loan amount. They can vary from around 1% of the borrowed amount to 10%, depending upon the lender. The fee is usually subtracted from the loan: If you borrow $10,000 and pay a 1% origination fee, you’ll receive $9,900 in funds.

Loan application fees

Application fees are also paid upfront but are much rarer than origination fees. Lenders charge them to cover the costs of processing an application submitted for a loan, and they vary by lender, loan type, and amount borrowed.

If a lender you’re considering charges an application fee, you can easily find an alternative that doesn’t.

Late payment fees

Late payment penalties aren’t charged when you obtain a loan, but rather if you make a monthly payment after it’s due. These fees are intended to deter late payments and cover any costs a lender incurs to collect the payment.

Some lenders charge a flat rate while others charge a fee equal to a percentage of the late payment. Flat rates on loans we’ve reviewed tend to be between $10 and $40, but could be as high as a $100. A percentage-based fee is usually 5%.

Prepayment penalties

Prepayment penalties are sometimes charged if you want to pay off a personal loan ahead of schedule. Not all lenders charge them, but those that do aim to recoup some of the interest they expected to obtain throughout the life of the loan.

A prepayment penalty is generally based on how long you have had your loan and your outstanding loan balance. If you have just a short time left in the repayment term, your prepayment penalty will be smaller.

Annual fees

While not common, some lenders charge annual fees during the time you have a loan. These are intended to cover costs associated with servicing a loan, such as collecting and processing payments. Personal loan annual fees are usually less than $100.

See the full guide here: Common Personal Loan Fees & Charges