Charge Challenge: Four Personal Loan Fees to Watch

Personal loans can be a powerful household financial tool. That’s why U.S. consumers took out 3.1 million personal loans in 2020.

Yet one element of financial risk that personal loan consumers may not consider before inking a deal is the number – and the amount – of personal loan fees.

Personal loan fees come in many forms and at various rates – and borrowers need to know them.

“Personal loan fees are common, but they do vary from one financial institution to another,” said Jeffrey Zhou, chief executive officer at Fig Loans, a Texas-based lender.

Here are the personal loan fees that borrowers can expect to pay.

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Late fees. If you’ve ever borrowed a VHS from Blockbuster in the 1990’s then you’re familiar with late fees. “If you’re late making a payment, obviously that is a red flag for lenders and they’ll charge a fee,” Zhou said. “It ensures that most borrowers will make their minimum payments on time.”

Expect to pay either four or five-percent of the monthly loan cost or between $20-and-$50 for personal loan late fees.

Non-sufficient funds (NSF) fees. If you have a check bounce or go into overdraft in a bank you will be charged NSF fees, Zhou adds.

NSF fees can go as high as $35 and they tend to accumulate if a loan borrower is not careful.

Origination fees. An origination fee is basically an application fee or processing fee that the lender will charge you initially. “It may only be 0.5% to 1% of your total loan, but depending on the size of the loan that can be a significant increase toward overall cost,” Zhou notes.

Early repayment fees: These fees come into play if you repay the loan early. Early repayment fees vary, but expect to pay around one or two months of payments to your financial institution.

“It sounds too unfair to be true, but the reality is if you try to pay off a chunk of your loan in a lump sum you could be charged a fee,” Zhou adds. ‘Lenders typically have a maximum repayment laid out so they can collect interest (ultimately, their main source of profit).”

“This isn’t to say that you shouldn’t pay off a loan in full if you have the chance, it just means you need to weigh if the fee is worth the peace of mind of paying off a loan,” he said.

Verification fee. Lenders may also charge a verification fee to cover the personal loan vetting process.

“The verification charge covers their cost of hiring an external agency to make sure you can actually repay the loan,” said Nate Tsang, founder of the stock market investment website, Wall Street Zen. “They’ll check your credit score as well, so ask if it’s going to affect your credit rating as well as how much it costs.”

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Handy Tips for Personal Loan Fees

With fee knowledge in hand, borrowers can set the stage for significant cash savings – especially when they deploy these personal loan fee strategies.

Know when you can negotiate fees – and when you can’t. Negotiating fees can be done up front, while you’re shopping around for your loan, as some fees can be waived as a perk for having you choose a lender.

“Any fee that isn’t under state or federal jurisdiction can usually be waived,” Zhou stated. “For example, Fig waives early repayment and late fees as incentive to help underbanked individuals gain trust in banking and avoid predatory payday loans. Negotiation can be as simple as pointing out that a competitor is offering a better deal- this is usually enough to convince a lender to waive a fee.”

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If you’re not sure on fees, keep looking. Being informed on personal loan fees is half the battle.

“Lenders don’t have to disclose fees in their advertising even though they must disclose interest rates,” Zhou added. “Consequently, don’t take the first option you find or the only option you know about because it’s where your parents or cousin found a personal loan.”

Ask to waive origination fees. Personal loan financing companies are known to waive fees – if you ask. “For example, the origination fee can often be waived,” said Jake Hill, founder of Debt Hammer, a personal financial content platform. “It’s a nonsense fee as it costs the bank nothing to set up your account.”

Know your APR. When you know the annual percentage rate (APR) on your personal loan, you’ll know how much you’re expected to pay on personal loan fees.

“If you want to determine just how much you’ll end up paying in loan fees after all is said and done, the best place to look is your APR,” said Nishank Khanna, chief financial officer at Clarify Capital, a small business lending platform in New York City. “This will factor in any added costs, like origination fees, and the interest you’ll pay on top of the principal balance.”

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Brian O’Connell

Brian O'Connell has been a finance writer at TheStreet, TheBalance, LendingTree, CBS, CNBC, WSJ, US News and others, where he shares his expertise in personal finance, credit and debt. A published author and former trader, his byline has appeared in dozens of top-tier national publications.