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How much do personal loans cost?
CNBC Select defines some common personal loan fees and explains how much they could cost you.
The best personal loans offer flexible repayment terms with lower interest rates than credit cards, which helps explain why they've been growing in popularity for the past couple of years.
Accessing a personal loan is arguably easier than it's ever been, due to the rise of online lending platforms and marketplaces that make it easy to shop for a loan based on your income, credit score and borrowing history. And because newer, more disruptive financial start-ups tend to have fewer restrictions compared to big banks, some companies may even consider non-traditional data points when evaluating your loan application.
Upstart, for instance, looks at your highest level of education achieved, among other unique factors.
While it may be quicker and easier to get a personal loan these days, especially if you have a good credit score and stable income, they still come with costs like any credit product does, ranging from APR to other hidden fees.
Ahead, 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 charge you pay to borrow money. APR is expressed annually, but since balances go down as you pay off your loan, the interest is broken down into smaller chunks and paid every month on top of your principal payment.
There are two kinds of APRs:
- Fixed-rate APR: With a fixed rate APR, you lock in an interest rate for the duration of the loan's term, which means your monthly payment won't vary, making your budget easier to plan.
- Variable-rate APR: Variable rates fluctuate based on the Fed's prime rate and can go up and down over the lifetime of your loan.
Most of the personal loans we recommended on our best-of list come with fixed-rate APRs, so your monthly payment stays the same for the loan's lifetime. In a few cases, you can take out a variable-rate personal loan. If you go that route, make sure you're comfortable with your monthly payments changing if rates go up or down.
Personal loan APRs average 9.34%, according to the Fed's most recent data.
An origination fee is a one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs. It's usually between 1% and 5%, but sometimes it's charged as a flat-rate fee. For example, if you took out a loan for $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 off the top, and you'd still have to pay back the full $20,000 plus interest.
It's best to avoid origination fees if possible. Having a good to excellent credit score helps you qualify for loans that don't charge origination or administration fees. None of the lenders on our best personal loans list charge borrowers an upfront fee for processing your loan.
You'll get charged a late fee if you fail to 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, the policies around late fees vary for every lender so it's important to review the terms and conditions.
These lenders on our best personal loans list don't charge late fees:
However, making late payments on your loan means you will continue to be charged interest for a higher balance, making it harder to pay off your loan in a timely way.
The two other lenders on our list, PenFed and Discover Personal Loans, charge late fees ($29 and $39, respectively).
Early payoff penalty
Some lenders charge an early payoff or prepayment penalty. Because lenders expect to get paid interest for the full term of your loan, they could charge you a fee if you make extra payments to pay your debt down quicker. The fees could equal either the remaining interest you would have owed, a percentage of your payoff balance or a flat rate.
The lenders on our best-of list do not charge borrowers for paying off loans early. That means, if you have the ability to pay your loan off early and get out of debt faster, you won't be dinged with a fee for getting out of debt faster.