No-Fee Personal Loans: How It Works and Tips to Get Approved

A lot of things you pay for have two prices: the advertised price—and the real price with all the extra fees. You might spot this same thing as you shop around for a personal loan; there's the cost in interest, then the cost with all the loan fees tacked on.

Then you spot an ad for a no-fee personal loan and wonder if it's legit. Given the size of the fees on some loans, it seems too good to be true to find a loan without all those extras.

Well, it's entirely possible to get a personal loan with no origination fees or other fees. No-fee loans have pros and cons like anything else, though. Read on to learn how no-fee personal loans work, and where to find them. 

What Are No-Fee Personal Loans?

No-fee personal loans let you borrow money without any added or hidden fees. You typically pay interest on the loan, but no other fees or costs. Personal loans with no fees could potentially save you money if the interest rate is also competitive. 

What types of personal loan fees do lenders typically charge? They can include:

• Origination fees. Most lenders charge an origination fee to write the loan. These fees can be a set dollar amount or a percentage of the loan amount. Origination fees come right off the top of the loan proceeds, before any funds are turned over to you.

• Prepayment penalties. A prepayment penalty is a fee the lender may charge if you pay off your loan early. These fees help the lender to make up for any interest they lose out on when you repay your loan in full ahead of schedule. Many lenders forgo these fees.

• Late fees. Lenders may charge late fees if you miss your payment due date. Late fees aren't exclusive to personal loans; you can pay them for credit cards, utility bills, and other payments.

• Returned payment fees. If you schedule a loan payment that doesn't go through because there isn't enough money in your account, your lender could charge a returned payment fee. Your bank could also charge overdraft or insufficient funds fees. 

A true no-fee personal loan wouldn't have any of these charges. Some lenders may offer personal loans with no origination fee, but still charge prepayment penalties, late fees, or returned payment fees. 

How much could an origination fee cost? Typically, origination fees range from 1% to 10%. For a $50,000 personal loan, you might pay anywhere from $500 to $5,000 to get the loan. So, you'd walk away with $45,000 to $49,500, once the fee is deducted. 

How to Get a No-Fee Personal Loan

To get a no-fee personal loan, you first have to find lenders that offer them. Next, you'll need to compare eligibility requirements for each loan, along with the interest rates and terms, to find the one that best fits your needs. Once you choose a loan, you can apply and wait for the lender's decision. 

Here are some tips to get a personal loan with no origination fee or other fees:

• Check out credit unions. Credit unions can offer personal loans with low rates and minimal fees. You'll need to be a member to apply for a credit union loan, but you can often qualify simply by living in the credit union's service area. Some credit unions also extend membership to everyone, regardless of where you live, work, or attend school.

• Talk to your current bank. If you bank with a smaller community or regional bank, it's worth looking into whether they offer no-fee personal loans. If your bank doesn't have no-fee loans, they may be willing to offer you rate discounts if you've been a loyal customer.

• Shop online. Several online lenders offer no-fee personal loans with a fast application process. Look for lenders that offer prequalification, which lets you see rate quotes without a hard credit check. Prequalification won't hurt your credit scores.

• Check your credit. Good credit could make it easier to get approved for personal loans with no origination fees or other fees. Poor credit loans, meanwhile, can cost you more in fees and interest. If your score isn't as high as you'd like it to be, you can move on to the next tip.

• Improve your credit. If you need an emergency or hardship personal loan, this step may not help right now. But if you have a little time, raising your credit scores could help you qualify for no-fee personal loans later. Some of the most effective ways to improve credit include paying bills on time, reducing your debt, and limiting how often you apply for new loans. 

No-Fee Personal Loan: Alternatives, and How to Apply

If you can't qualify for a no-fee personal loan, you could still get approved for a loan that charges origination or other fees. Or you could apply for a credit card or personal line of credit instead. If those options aren't available, borrowing from friends and family may be a possibility. You could also try to sell some of your stuff to raise the money you need. 

Keep these tips handy if you decide to apply for a personal loan that charges origination or other fees:

• Know the range. Some lenders charge every borrower the same origination fee but others use a range. The fee you pay may be determined by your loan amount, term, credit scores, and income. Where you live can also make a difference, since state laws may cap the fees lenders can charge. 

• Compare flat-fee vs. percentage-based fees. If you're stuck between two loans that charge a flat fee or a percentage, do the math to figure out which one will cost less. Also, look for wording in the loan agreement that mentions administrative or processing fees. Some lenders may use this term in place of origination fee, but they essentially mean the same thing.

• Negotiate. Your lender may be open to negotiating personal loan origination fees. You'll need to be able to make a strong case as to why the lender should reduce the fee. For example, if you have a co-signer with strong credit, that could persuade the lender to waive the fee.

• Read before you sign. Less reputable lenders may use bait-and-switch tactics to get you to agree to a loan. For example, the lender may tell you the origination fee is one amount, then switch it to a higher amount when it's time to sign the loan paperwork. Always verify that the loan details spelled out in the agreement match what you were initially offered. 

No-fee personal loans are out there, and some of them can put money in your hands the same day, or the next day after you're approved. If you have a sudden financial hardship or emergency that requires cash, it's reassuring to know you can borrow what you need. A little research can go a long way to help you connect with the best loan option.