Securing funds through a personal loan offers a strategic approach to achieving financial objectives, like combining high-interest balances from various sources or covering unexpected costs such as vehicle fixes, medical bills, or vet bills. Furthermore, judiciously handling installment credit, including personal, auto, or mortgage loans, can contribute to improving your credit standing.
TL;DR
- Interest is the primary unavoidable cost of a personal loan, reflected in the APR.
- Avoidable costs include late fees, early payoff penalties, application, and origination fees.
- Boost credit score, shop rates, and use autopay to potentially lower loan expenses.
- Consider loan term length and only borrow what you need to manage costs.
Obtaining funds through borrowing comes with a price. Furthermore, the cost can seem excessively high, depending on your chosen financial institution. Continue reading as we outline five personal loan expenses to be aware of. We'll also explore strategies for potentially lowering your personal loan expenses.
Costs that can't be avoided with personal loans
There is really one main inescapable cost associated with a personal loan—the interest charges.
Interest
Upon loan approval, the bank will determine your interest rate primarily based on your creditworthiness. This interest rate is then converted into an annual percentage rate (APR), which includes your interest rate along with any relevant fees.
Subsequently, you'll be enrolled in an installment plan, making uniform monthly payments until your loan is fully settled. The loan's Annual Percentage Rate is incorporated into your monthly installments, signifying that each payment will consist of a sum allocated to interest and another sum applied to the loan's principal balance.
While you can't avoid interest on a personal loan, you can take steps to reduce what you pay out of your own pocket (we'll discuss some methods shortly).
Avoidable personal loan costs
Some ancillary costs are a result of how you manage your personal loan.
Late fees
Beyond the severe damage to your credit score, failing to pay your personal loan on time may lead to charges. While the specific fine differs among lenders, anticipate paying either a portion of your outstanding balance or a fixed sum of money.
To prevent late charges, consider enrolling your account in automatic payments as a safeguard against forgetting to submit your bill. This serves as a backup to ensure your payment is made on time.
Early payoff penalties
Some lenders charge penalties if you pay off your loan before the end of the term. We think this is a borderline predatory fee that penalizes you for trying to get out of debt as quickly as possible. It ensures the financial institution will be compensated if it doesn’t receive every penny of interest you would have paid if you’d simply made the minimum payment each month.
If you can help it, stay away from lenders who charge these fees.
Personal loan rates vary by lender
Similar to early prepayment fees, there are a couple other costs that may be assessed depending on lender. In other words, these are not universally tacked on by all banks. Try to do business with those that don’t charge these fees.
Admin fee
Application fees aren’t standard practice among lenders, but they’re still something to watch for. These fees are supposedly to cover the costs associated with processing your loan application. In general, application fees can reach $50; the exact fee will vary by lender.
Even more frustrating is the fact that you may have to pay this fee even if your application isn’t approved.
Origination fee
Another seemingly arbitrary cost is a loan origination fee. Again, this is not charged by every lender, so do your best to work with one that doesn’t ding you with it.
Origination fees are typically between 1% and 10% of your loan amount. Oftentimes, the bank will subtract this fee from the loan amount when depositing funds into your bank, and you’ll pay the full loan amount as agreed upon. If a lender that does assess an origination fee turns out to be your best option, at least try to find one with a fee at the lower end of that range.
For example, if you opened a $50,000 loan with an origination fee of 2%, you’d pay a $1,000 origination fee. That means the bank would deposit $49,000 into your bank account—and your outstanding loan balance would be $50,000.
Keep the origination fee in mind when calculating the amount of money you want. The origination fee could result in receiving less than you need.
Slash your loan costs
Beyond steering clear of lenders that levy avoidable charges like origination and application fees, there are steps you can take to lower the price of borrowing money with a personal loan. That’s particularly true if you have a bit of lead time before you need the funds.
Boost your credit score
Credit bureaus take factors of your credit usage—payment history, average length of account age, credit utilization, etc.—and from these elements generate a number that indicates how responsible you are with borrowing money. In general, the higher your credit score, the more favorable your loan terms should be.
For example, your credit score helps to determine your loan’s interest rate and origination fee (if one applies). Improving your credit score might potentially save you thousands of dollars over the lifetime of your loan.
Adjust your term length
Your loan term is the length of time you’ve got to pay back the money you owe. With a bit of strategy, your term might help you pay off your loan considerably faster.
For example, some lenders will charge you a lower interest rate if your repayment term is shorter. Alternatively, you could choose the loan with the longest term to lower your monthly installment amount and then decide to pay extra on the principal each month. The sooner you pay off your loan in full, the less interest you’ll end up paying over the life of the loan.
Rate shop
It's wise not to automatically accept the initial loan proposal you receive. Comparing various lenders is crucial to secure the most advantageous loan for your specific circumstances. A significant number of lenders provide the option for pre-approval on a loan. This process should outline the projected loan conditions, including the repayment timeline, annual percentage rate (APR), and the sum you can borrow.
Put your loan on autopay
Using autopay with your loan will save you from paying late fees—and it can also lower your interest rate with some lenders. For example, LightStream offers a 0.50%-point discount for those with autopay as of this writing.
Only take out what you need
While it might seem harmless to borrow more money than you require, there can sometimes be advantages. For instance, if your savings are depleted, a larger loan could provide the necessary funds to cover your expenses during a period of financial difficulty. However, be aware that this approach will lead to increased interest payments over time.
Top personal loans with minimal charges
| Best for | Institution | Loan amount | Max loan term | APR (with eligible discounts) | Learn more |
|---|---|---|---|---|---|
| Longer repayment terms | LightStream | $5,000-$100,000 | 240 months | 6.24%–24.89% | View offer at Bankrate |
| Fee-sensitive borrowers | Wells Fargo | $3,000-$100,000 | 84 months | 6.74%-26.49% | View offer at Bankrate |
| Low maximum APR | PenFed Credit Union | $600-$50,000 | 60 months | 6.99%-17.99% | View offer at Bankrate |
| Preapproval | American Express | $3,500-$50,000 | 60 months | 6.99%-19.99% | View offer at American Express |
| Small loan amount | TD Bank | $2,000-$50,000 | 60 months | 7.99%-23.99% | View offer at TD Bank |
| Longer repayment terms | View offer at Bankrate |
|---|---|
| Institution | LightStream |
| Loan amount | $5,000-$100,000 |
| Max loan term | 240 months |
| APR (with eligible discounts) | 6.24%–24.89% |
| Fee-sensitive borrowers | View offer at Bankrate |
| Institution | Wells Fargo |
| Loan amount | $3,000-$100,000 |
| Max loan term | 84 months |
| APR (with eligible discounts) | 6.74%-26.49% |
| Low maximum APR | View offer at Bankrate |
| Institution | PenFed Credit Union |
| Loan amount | $600-$50,000 |
| Max loan term | 60 months |
| APR (with eligible discounts) | 6.99%-17.99% |
| Preapproval | View offer at American Express |
| Institution | American Express |
| Loan amount | $3,500-$50,000 |
| Max loan term | 60 months |
| APR (with eligible discounts) | 6.99%-19.99% |
| Small loan amount | View offer at TD Bank |
| Institution | TD Bank |
| Loan amount | $2,000-$50,000 |
| Max loan term | 60 months |
| APR (with eligible discounts) | 7.99%-23.99% |
Loan details checked Nov. 12, 2025
The takeaway
Personal loans come with costs. You'll definitely incur interest charges monthly, which, alongside a portion of the principal, make up your total repayment, until the loan is fully settled. Additionally, depending on your chosen bank and loan management, you might face origination fees, late payment penalties, and other charges.
Select a lender with minimal fees and favorable APR and repayment conditions. Additionally, aim to repay your loan as swiftly as possible to reduce the interest paid.
Frequently asked questions
The Annual Percentage Rate (APR) and the interest rate both represent the cost of borrowing money, but they differ in what they include. The interest rate is simply the percentage charged on the principal amount of a loan. The APR, however, encompasses the interest rate plus any additional fees and charges associated with the loan, such as origination fees, closing costs, and other administrative expenses. Therefore, the APR provides a more comprehensive picture of the total cost of borrowing over a year.
The interest rate on a personal loan shows how much you'll be charged for borrowing funds. The annual percentage rate (APR) includes the interest rate along with other expenses, like fees.
Should you pay off your personal loan ahead of schedule when a prepayment penalty applies?
Deciding if paying a prepayment fee to reduce interest is beneficial hinges solely on which option results in greater savings. Should the prepayment penalty exceed the interest you'd incur by making only the minimum monthly payments on your loan, then early loan repayment isn't financially advantageous.
A personal loan payment is deemed late when it's not received by the lender on or before the scheduled due date.
If your payment isn't settled by the due date, it's considered late. Lenders might offer a grace period of as long as 30 days before notifying credit bureaus of your delinquency, though a late fee could be applied very quickly.
When obtaining a personal loan, be aware of potential fees such as origination fees, late payment penalties, and prepayment charges.
When evaluating a personal loan, it's crucial to factor in all associated expenses, such as interest and penalties for late payments. Be especially cautious of financial institutions that impose extra charges, like fees for paying off the loan early, processing applications, or originating the loan.
Not all lenders offering personal loans impose origination fees.
Not every lender offering personal loans imposes origination fees. Consequently, borrowers often benefit from comparing options to find a lender that waives this charge.