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Lenders often charge fees to cover costs associated with providing a personal loan. The types of fees you may encounter include origination, processing and late fees, among others. But there are ways to reduce personal loan fees or get your lender to waive them entirely. Before taking out a personal loan, review these five fees that lenders might charge.
1. Origination Fee
Some lenders charge a loan origination fee when you first take out a loan. Used to cover the costs to process and underwrite your loan, origination fees are calculated as a percentage of the loan amount. These fees may be deducted from the amount funded or rolled into the total cost of the loan and paid over time. Origination fees usually range from 1% to 6%.
2. Application Fee
Application fees cover the costs of processing, reviewing and documenting your loan application. The fee is typically paid at the time of application and might be nonrefundable, even if the lender denies your application. Application fees are not common among personal loan lenders.
3. Prepayment Penalty
A prepayment penalty, also called an exit fee, may be charged if you pay off your loan before the end of the term. Prepayment penalties are designed to cover the interest your lender would have earned over the entire duration of your loan. This fee can be a percentage of your loan balance or a flat fee, and can be fairly expensive. Some personal loan lenders do not charge prepayment penalties.
4. Late Fee
A lender may charge a late fee when you miss a payment or fail to pay your loan in full by the end of the term. Like a prepayment penalty, late fees can be either a flat fee or a percentage of your loan balance. Generally, late fees can range from about $25 to $50 or between 3% and 5% of the monthly payment amount, depending on the lender.
Keep in mind that if a payment ends up being 30 days or more past due, your lender may report the delinquency to the credit reporting agencies (Experian, TransUnion and Equifax). Once reported, it can remain on your credit report for seven years.
The lender may charge a late fee and a returned check (or insufficient funds) fee if you don't have enough money in your bank account to cover your loan payment.
5. Payment Processing Fee
Although uncommon, some lenders may charge a payment processing fee, which can be added to every payment you make. You might see a check processing fee or a fee if you don't sign up for automatic payments. A lender may also charge a fee to process a wire transfer, which typically costs $15 for each transaction.
How to Avoid Personal Loan Fees
Not all personal loans have fees attached. To avoid or reduce the fees you incur, take these steps.
- Shop around and compare offers. Many lenders charge fees, but not all. The best way to avoid paying fees on your personal loan is to shop around and compare lenders. That way, you'll know what your costs will be upfront so you're not surprised later on.
- Set up autopay. Many lenders offset loan fees when you set up autopay. It lowers the risk to the lender that you'll miss a payment and gives you the peace of mind that your loan repayments will be made on time. You'll also avoid any late fees charged by your lender.
- Only borrow what you need. If a lender charges a loan origination fee, which is usually a percentage of the amount you borrow, it pays to only borrow what you need.
- Just ask. One strategy to avoid paying loan fees is to negotiate fees and other charges with your lender. A lender may waive fees if you're a good customer or at least reduce the fee amount. But you'll never know if you don't ask.
The Bottom Line
Fees and other charges can add to the total cost of your loan, so it's important to closely review the terms and conditions of a loan prior to applying. To make your search for a personal loan easier, check out Experian CreditMatch™ to compare personalized loan offers from top lenders.