Right now, the average personal loan APR is 12.65% for borrowers with good credit, according to Bankrate. But depending on the lender, the real cost can be a lot higher once you factor in fees and fine print.
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I’ve reviewed dozens of loan offers over the years — for myself, family, and in my writing career — and I’ve seen firsthand how easy it is to overlook sneaky charges.
Here are some of the most common hidden costs of personal loans and how you can sidestep them like a pro.
Origination fees can shrink your loan before you get it
Some personal loan lenders charge an origination fee, just to process your application and give you money.
The fee is typically based on your credit score, loan amount, and lender, and it usually ranges from 1% to 10% of the total loan. Most of the time, it’s deducted directly from your payout.
That means if you borrow $10,000 and there’s a 5% origination fee, you’ll only get $9,500 (but you still owe the full $10,000).
Not all lenders charge origination fees, so I always recommend shopping around before committing. It could save you hundreds!
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Pro tip: You’ll usually find this fee disclosed way down in the loan’s terms and conditions. Whether it’s obvious or not, it’s always worth asking the lender directly before signing anything.
Penalties for paying off your loan early
I’m a huge fan of knocking out debt ASAP. The faster you pay it off, the less interest you owe, and the more freedom you gain.
But here’s the catch: some personal loans charge a prepayment penalty if you clear your balance ahead of schedule.
These fees can vary, but they typically range from 1% to 2% of your remaining balance, or a flat fee (like, $100). Either way, it’s money you shouldn’t have to pay just for doing the responsible thing.
Quick tip: If you’re confident you can pay off your debt within 12 to 18 months, a 0% intro APR credit card could be a better fit. Many offer an intro period where you won’t pay any interest at all — just be sure to read the terms and pay it off before the rate kicks in!
In any case, before signing any personal loan agreement, double-check for any prepayment clause. If it’s buried in the fine print, don’t be afraid to ask the lender directly.
Late fees feel small — until they aren’t
Late fees aren’t exactly hidden, but they’re sneaky in a different way… You never think they’ll apply to you… until life happens.
Most lenders charge $25 to $50 (or a percentage of the unpaid amount, like 3%-5%) if you’re even a few days late. And missed payments can ding your credit score, making future borrowing more expensive.
The best way to avoid late fees is to set up autopay for at least the minimum payment. It also can help to set alerts a few days before your due date, and keep a small buffer of cash in your bank account.
Teaser APRs you won’t qualify for
Out of all the sneaky tricks banks play, this one annoys me the most: the teaser rate.
Basically you might see ads promising personal loans with “as low as 6.99% APR,” but in reality, most people don’t actually qualify for that rate.
The absolute lowest APRs for personal loans are typically only given to people with excellent credit (typically 760+ FICO) and solid income. Everyone else gets a higher rate (sometimes much higher).
Before applying, try using a lender’s prequalification tool (with no hard credit check) to see your estimated rate. And always compare offers across multiple lenders to avoid overpaying.
The bottom line
The cheapest personal loan isn’t always the one with the lowest APR.
You gotta look beyond the advertised rate. Always include origination fees, prepayment penalties, late fees, etc. into your calculations. And don’t fall for the teaser APRs!
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