Borrowing money via a personal loan can be a strategic way to hit certain financial goals, such as consolidating high-interest debt from other accounts or paying off emergency car repairs, medical expenses, or vet bills. Plus, responsibly managing installment credit like a personal loan, auto loan or mortgage can help bolster your credit score.
However, borrowing money isn’t free. And depending on the lender you choose, it can feel downright exorbitant. Read on and we’ll share five personal loan costs to watch out for. We’ll also examine how to potentially reduce the amount you pay for a personal loan.
Unavoidable personal loan costs
There is really one main inescapable cost associated with a personal loan—the interest charges.
Interest
When you’re approved for a loan, the bank will assign you an interest rate largely based on your creditworthiness. Your interest rate will be translated into an annual percentage rate, or APR, which factors in your interest rate plus any applicable fees.
You’ll then be set up on an installment plan where you’ll make equal monthly payments until your loan is paid off. The loan’s APR is baked into your monthly payments, meaning that a portion of every installment will go toward interest and a portion toward the principal of the debt.
Although interest is unavoidable when taking out a personal loan, there are ways to minimize your out-of-pocket (we’ll cover some strategies in a minute).
Avoidable personal loan costs
Some ancillary costs are a result of how you manage your personal loan.
Late fees
To say nothing of the devastating effects to your credit score, a late payment on your personal loan can result in fees. The exact penalty varies by lender, but you can expect to pay either a percentage of your amount owed or a flat dollar amount.
To avoid late fees, it’s wise to put your account on autopay—just in case. This will act as a failsafe in case you forget to make your payment.
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.
Lender-specific personal loan costs
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.
Application/administrative 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.
How to lower your personal 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.
Work on improving 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
Don’t necessarily accept the first loan offer you see. It’s important to compare lenders to find the most favorable loan for your situation. Many lenders will give you the opportunity to be preapproved for a loan. This should reveal your proposed loan terms, such as repayment schedule, APR, and borrowing amount.
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
You may think there’s no harm in taking out a loan larger than what you need. In truth, there can occasionally be some benefit to that; if you’re low on savings, requesting a larger loan can give you the funds you need to stay current on your bills in the event that you go through a financial hardship. But, understand that this strategy will result in paying more interest in the long run.
Best personal loans for low fees
| 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 aren’t free. You’re guaranteed to have to pay interest charges each month (a component of your monthly payment along with a portion that goes to the debt’s principal) until you’ve fully repaid your lender. And depending on the bank you choose and the way you manage your loan, you could also pay origination fees, late fees, and more.
Choose a lender that is light on fees and provides reasonable APR and repayment terms. And pay off your loan as quickly as you can to minimize the interest you incur.
Frequently asked questions
What’s the difference between APR and interest rate?
A personal loan’s interest rate indicates the amount of interest you’ll pay for borrowing money. Its annual percentage rate (APR) indicates the interest rate plus any other costs, such as fees.
Is it worth paying off my personal loan early if there’s a prepayment penalty?
The answer as to whether it’s worth eating a prepayment fee to save on interest depends entirely on which will save you more money. If a prepayment fee is more than the interest you’d shell out for making monthly minimum payments on your loan, then it’s not worth paying off your loan early.
When is a payment considered late on a personal loan?
Your payment is late if it’s not paid by the due date. There may be a grace period of up to 30 days before the lender reports you as late to the credit bureaus—but you could be assessed a late fee almost immediately.
What costs should I watch for when getting a personal loan?
You should consider all costs associated with a personal loan, including interest and late fees. And you should be particularly wary of lenders that charge additional penalties, such as early payoff fees, application fees, and origination fees.
Do all personal loan lenders charge origination fees?
No, not all personal loan lenders charge origination fees. For this reason, consumers will oftentimes do well to shop around and select a lender that doesn’t charge this fee.