Your Money Working Harder
Even if taking out a personal loan isn’t on your list of goals, there are situations where these loans make sense. You may need to borrow money to pay for a major home repair, your kid’s braces, or a new car to get to work, for example. Personal loans are also popular for debt consolidation since they tend to offer much lower interest rates than credit cards.
One big benefit of personal loans is that they’re very predictable and easy to plan for. Unlike credit cards that offer variable interest rates that can change over time, personal loans come with fixed interest rates, fixed repayment periods, and fixed monthly payments that always stay the same. (See also: 5 Times Personal Loans May Be Better Than Credit Cards)
Another benefit of personal loans is the fact they often come without any fees. Of course, these personal loans are typically only available to consumers with good, very good, or exceptional credit, or FICO scores over 670. And actually, those with the very best credit — FICO scores over 740 — are the ones most likely to qualify for the best rates and terms, according to myFICO.
With good or great credit, you should be able to qualify for a personal loan that doesn’t tack on fees that make it more expensive over time. Here are the fees you should try to avoid. (See also: 8 Fees You Need to Stop Paying Right Now)
1. Application fees
Most personal lenders don’t charge a fee to apply for their products, but some do. These fees are assessed in order to cover the costs of processing your application and setting up your new loan, and they’re non-refundable.
Ideally, you should look for lenders who don’t charge any application fees to apply. Even better, look for lenders that let you get pre-qualified without a hard inquiry on your credit report. That way, you can gauge your ability to qualify without any negative impact to your credit score.
2. Origination fees
Outside of application fees, many reputable lenders charge origination fees — or fees assessed to originate your loan. These fees can vary by lender and even with the same lender depending on your credit score and other factors. They can even be as high as 8 percent of your loan amount, which is a lot. As an example, peer-to-peer lender Lending Club states they charge origination fees that depend on a consumer’s credit rating and the information in their application, ranging from 1 to 6 percent of the loan amount.
The good news is that many lenders don’t charge these fees. If your credit is good enough to qualify for a lender that doesn’t charge an origination fee, you should opt out of this fee altogether.
3. Prepayment fees
Prepayment penalties are fees assessed on borrowers who pay their loans off early. No matter what, you should look for a personal loan that won’t charge you extra fees for prepaying your loan. These fees are a waste of money, and they penalize you for doing the right thing.
No matter how your credit rating looks, never sign up for a personal loan that charges you money for paying more than you have to.
4. Late fees
Most lenders charge late fees if you pay your personal loan later than your payment due date — or beyond any grace period they afford you. These fees are typically around $40 a pop, but you can rack up considerable fees if you’re constantly paying your bill late.
No matter which lender you sign up with, it helps to have a plan to make your monthly payment early or on time each month. Mark your due date in your calendar, set up alerts on your phone, or set your bill to be paid on auto-pay if you think it would help. Some loan companies even offer discounts when you set your loan payment to be paid automatically, so you could save money and avoid late payments in one fell swoop.
5. Returned check fees
Most lenders charge a fee for check processing if your check has to be returned for any reason, including insufficient funds. These fees can vary depending on the lender, but they are often around $15-$25 per returned check.
You can avoid returned checks by making sure you always have the funds in the bank to cover your personal loan payment. Better yet, pay your personal loan payment online via direct transfer from your bank account. That way, your payment is posted much faster and you won’t risk it getting lost in the mail.
How to shop for a personal loan
Now that you know which fees to avoid, you’re probably wondering how you can find out which lenders charge fees and which don’t. Your best bet is taking some time to shop around and compare lenders based on their interest rates, fees, and other factors. The best lenders for personal loans offer loans with no fees, and they often let you get pre-qualified for a loan without filling out a full application or having a hard inquiry placed on your credit report. (See also: Here Are the Right Ways (And the Wrong Ways) to Use a Personal Loan)
Find your best match now with this handy comparison tool. Select the type of loan you’re looking for, the amount, your credit rating and state, to see the best options available for you.