Personal Loan Fees Explained: What You’ll Pay and How to Avoid Them

Overview of Common Personal Loan Fees

When you take out a personal loan, the cost isn't just the interest rate. Lenders may also charge fees for processing, late payments, or paying off the loan early. These fees can vary widely depending on the lender, and they can significantly affect the total amount you’ll repay.

The Consumer Financial Protection Bureau notes that personal installment loans often include fees such as origination fees, application fees, and late payment fees, in addition to interest. Understanding these fees is essential to budgeting accurately and comparing loan offers effectively.

• Origination fee: often a percentage of the loan amount, deducted from the loan proceeds before you receive the funds.
• Late payment fee: charged when you miss a payment or pay after the due date.
• Prepayment penalty: a fee for paying off the loan ahead of schedule, though less common than in the past.
• Returned payment fee: applies when a payment is rejected due to insufficient funds.
• Application fee: a flat charge to process your loan application, though many lenders do not charge it.

Sources: Consumer Financial Protection Bureau, LendEDU

Origination fees: what they are

An origination fee is a charge for setting up the loan. According to multiple sources, origination fees on personal loans typically range from 1% to 10% of the loan amount. The fee is usually deducted from the loan proceeds before you receive the money, but you’re still responsible for repaying the full principal.

Some lenders charge no origination fee at all, including Discover, Wells Fargo, SoFi, and several other major banks.

• Typical range: 1%–10% of the loan amount.
• Usually deducted from the loan proceeds, but you repay the full loan amount.
• Some lenders offer loans with no origination fee, such as American Express, Citizens Bank, Discover, PNC, SoFi, and Wells Fargo.

Sources: MyBankTracker, LendEDU, Discover

Late Payment and Returned Payment Fees

Late payment fees are charged when you miss a payment due date. These fees commonly range from $10 to $100 or a percentage of the unpaid payment, often around 5%.

Returned payment fees, also called insufficient funds fees, are incurred when your payment cannot be processed due to insufficient funds. These typically range from $20 to $50, though one lender, Upgrade, discloses a $10 fee for this event.

• Late fee ranges: $10–$100 or up to 5% of the payment amount.
• Returned payment fee: often $20–$50, but may be lower at some lenders.
• Even no-origination-fee lenders may charge late fees.

Sources: MyBankTracker, LendEDU, ConsumerAffairs

Prepayment Penalties: Are They Common?

A prepayment penalty is a fee charged if you pay off your loan before the end of the loan term. Such penalties are less common than they used to be, and many major lenders do not charge them. When they do apply, they typically amount to 1%–2% of the loan balance.

Banks and online lenders that explicitly state no prepayment penalties include Discover, Wells Fargo, SoFi, and several others. Before signing, check the loan agreement to confirm whether a prepayment penalty applies.

• Prepayment penalties are less common and usually range from 1% to 2% of the remaining loan amount.
• Many major lenders, including Discover, SoFi, and Wells Fargo, do not charge prepayment penalties.
• Always review the loan terms for any early payoff fee.

Sources: MyBankTracker, LendEDU, ConsumerAffairs

Other Fees to Watch For

Beyond origination and late fees, lenders may levy other charges. Application fees, if charged, are typically flat fees of $25 to $50, though some sources suggest they can be a percentage of the loan. Some lenders also charge document processing or closing fees, though these are less common for personal loans.

Annual fees are occasionally mentioned but are not widely reported, so it's best to verify with the lender. Always review the loan estimate provided under regulations like the Truth in Lending Act (Regulation Z) to see if any such fees are included.

• Application fees: flat charges, often $25–$50, and not charged by many lenders.
• Document or processing fees: may apply, but vary by lender.
• Check the loan disclosures carefully for any fees not mentioned here.

Sources: MyBankTracker, Experian, ConsumerAffairs, Fortune

How Fees Impact APR and Total Cost

The Annual Percentage Rate (APR) is a more complete measure of borrowing cost than the interest rate alone. APR includes the interest rate plus certain fees, such as origination fees, so it reflects the true yearly cost of the loan. Comparing APRs is a reliable way to gauge which loan is less expensive.

When you compare offers, look at the APR alongside the actual dollar amount of fees. Even if a loan has a lower interest rate, a high origination fee could make it more expensive over time. Use the APR to compare apples to apples.

• APR includes interest and certain loan fees, making it a more accurate gauge of total cost.
• A lower interest rate does not always mean a cheaper loan if fees are high.
• Use APR to compare personal loan offers side-by-side.

Sources: Consumer Financial Protection Bureau, Credible, Upgrade, Discover

Side-by-Side Comparison: Which Lenders Charge What?

The table below summarizes the origination and late fee policies for several lenders, based on public information available at the time of research. Keep in mind that fee structures can change, so always confirm current terms with the lender before applying.

Sources: MyBankTracker, Discover, Wells Fargo, CNBC Select