A personal loan can be a helpful way to cover a big expense, consolidate debt, or handle an emergency. But most borrowers don’t realize just how much the laundry list of fees can change the actual cost of their loan.
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And as someone who’s written about personal finance for years — and is now looking into a personal loan himself — I can’t emphasize the importance of reading the fine print enough.
Here are the biggest traps to watch for before you sign on the dotted line.
Origination fees eat into your loan amount
The biggest and most important fee you’ll see on your personal loan is an origination fee, which is typically taken out of your loan before you even receive the money.
Origination fees usually range from 1% to 10% of the total loan amount, depending on factors like your credit score and the amount of your loan. That means if you take out a loan for $10,000, for example, you may actually get as little as $9,000 — but you’ll still have to repay the full $10,000, plus interest.
For this reason, you’ll want to check how much you’ll actually get from your loan after the origination fee. If you need a specific amount of cash, you may have to borrow more than expected to cover it.
Ready to calculate how much you’ll need? Check out our list of the best personal loans to save on fees today.
Hidden fees can add a lot to your loan
The interest rate you’re shown on your loan — also called the annual percentage rate, or APR — is supposed to reflect the true cost of the loan, including most fees. But in practice, lenders don’t always make every charge easy to spot.
Lenders often tack on extra fees for things like processing or application charges, late payments, returned checks, or early payoff penalties. Yes, you read that right: Lenders will actually make you pay more for repaying your loan early, because charging interest is how they make money.
Altogether, these fees can quietly add as much as 10% to the cost of your loan. Make sure to read through all of the loan terms and ask for a full breakdown of every potential fee before agreeing to anything.
Look out for other potential pitfalls
Lenders are required to give you full loan terms in writing, but it’s up to you to read them. Watch for things like variable interest rates that may increase over time, as well as mandatory insurance or other add-ons that increase your monthly payment.
Autopay setups are common, too, and can be convenient — but they can also be risky if you forget to account for them in your budget, leading to potential overdraft or late fees.
If anything doesn’t make sense, ask. A good lender will explain everything in plain English.
Looking for a lender you can trust? Check out this list of our favorite personal loan lenders.
Avoid “guaranteed approval” and upfront payments
Some online lenders or loan “brokers” advertise guaranteed approval or ask for an upfront payment before you get your loan. These are major warning signs.
Legit lenders will never ask you to pay before you receive your funds. And no one can guarantee approval without checking your income and credit.
If you’re ever unsure, you can check if the lender is registered in your state or search for complaints through the Consumer Financial Protection Bureau (CFPB) or Better Business Bureau (BBB).
How to protect yourself
Here are a few beginner-friendly tips before taking out a personal loan:
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Compare at least three lenders side by side
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Read the full disclosure and fee breakdown on each
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Use a loan calculator to see your true repayment cost
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Check reviews and ratings from trusted sources
And if the terms seem too good to be true, trust your gut. The best personal loans are transparent, affordable, and clear about what you’re getting into.
By watching for fees, reading the fine print, and avoiding shady lenders, you can borrow safely while staying in control of your finances.
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