The top personal loanshave flexible repayment terms and less interest than credit cards. This helps to explain the reason why personal loans have beenbecoming more popularover the last few years.
Finding a personal loan is arguably easier than ever before, because of the proliferation of lending websites and marketplaces that allow you to search for the right loan based on earnings,credit score,and history of borrowing.Also, since newer and more innovative financial start-ups are more likely to have fewer restrictions as compared to banks with large branches and other institutions, some may look at non-traditional data factors when they evaluate the loan application.
While it is faster and simpler to secure a personal loan these days, particularly if you havea good credit scoreand a steady income, they are still accompanied by costs just as any credit product, and can range betweenAPRand other hidden charges.
In the next section, we’ll discuss the most common personal loan fees and explain the amount they can cost you.
A common personal loan fees
The rate you pay for interest — or APR (annual percentage rate) is the monthly fee you pay each month to borrow money.APR is calculated annually however since balances fall when you pay off the loan, interest is divided into smaller portions and then each month, it is paid in addition to your principal installment.
There are two types of APRs:
- Fixed-rate APRWith fixed-rate APRs you secure an annual interest charge for the length of the loan’s duration This means that your monthly payments won’t change and your budget will be easier to budget.
- Variable-rate APRVariable rates change based on Federal Reserve’s Prime Rate and may fluctuate upwards and downwards over the life of the loan.
A majority of the personal loans that we have recommended on ourtop-of-the-line listhave fixed-rate APRs which means that your monthly installment remains the same throughout the duration of the loan.In a few instances, you could avail a variable-rate personal loan.If you choose to take this method, be sure that you’re comfortable with monthly payments changing when rates rise or fall.
Personal loan APRs range from 9.34% to 9.34 percent, according to thelatest data from the Federal Reserve.
Origination fees are upfront, one-time charges that your lender subtracts from your loan in order to pay for processing and administration expenses.It’s typically between 1and 5 percent however, sometimes it’s charged at a flat rate.In the example above If you take out a loan amounting to $20,000, and there was an origination fee of 5 then you’d receive $19,000 after receiving your money.Your lender would only receive $1000 on top,and you’d still have to pay the entire $20,000 plus interest.
It is recommended to avoid fees for origination if you can.A good or excellentcredit ratingwill allow you to qualify for loans that do not charge administrative or origination fees.All of the lenders that are listed on ourtop personal loans listrequire borrowers to pay fees upfront for processing the loan.
You’ll be assessed an extra fee for late payments when you do not pay your bills by when the deadline is. Sometimes, there’s an extension of up to five days from the due date to enable processing by banks. However, the rules regarding late fees differ for each lender, therefore it is essential to check the conditions and terms.
If you are unable to pay on time, late repayments on your loan will mean you’ll be charged interest on an amount that is higher, making it more difficult to pay off your loan on time.
Penalty for early payoff
Certain lenders may charge the early payment or prepayment penalty. Since lenders are expecting to be an interest payment for the entire duration of your loan, they may charge you a fee should you make additional payments to settle your debt faster. The charges could be as high as the interest remaining that you would have to pay as well as a percentage of the payment balance, or a flat fee.
The lenders listed onour list of the top lendersdo not charge their customers to pay off loans earlier.So, when you’re able to pay off your loan in time and pay off your debt more quickly, you will not be charged a penalty for paying off your debt quicker.