Best Personal Loans With No Early Repayment Fee
April 2024
Don't allow lenders to charge you extra for paying your loan early. Early repayment fees -- also known as prepayment penalties -- can get expensive if you try to pay off a loan before the term ends. This is our list of the best personal loans with no prepayment penalties.
SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more
Nobody likes to pay fees when borrowing money, but prepayment penalties are particularly annoying. Lenders that charge this penalty are effectively increasing your interest rate because you had the good sense of trying to get out of debt as soon as possible.
The good news is that many lenders don't charge a prepayment penalty. This is our list of the best personal loans with no prepayment penalties.
Methodology
SuperMoney's list of the best personal loans with no early-repayment fee is based on the qualitative recommendations of our community members and the quantitative recommendations of our ranking algorithms. We analyzed more than 100 lenders and focused on lenders that provide the best rates without charging a prepayment penalty.
What is a prepayment penalty?
Prepayment penalties are fees lenders charge when borrowers repay their loans ahead of schedule. They serve as protection for lenders against losing interest income. This is because lenders base the interest rates they charge on the expectation that borrowers will stick to the repayment terms selected when the loan is approved. If a borrower pays early, they pay less interest, which means a reduction in profit for the lender. The prepayment penalty is designed to compensate the lender for that "loss."
What are the best rates and terms for loans with no prepayment penalties?
It depends on who is applying. However, the best APRs in our list of personal loans that don't have prepayment penalties range from 6.99% to 35.99%. The rate you are offered will depend on several factors, such as your credit score, your credit history, income, and debt levels.| APR | 6.99% - 35.99% |
Frequently Asked Questions
Can You pay a loan off early?
Yes, you can typically repay a loan early. However, some lenders charge a penalty for doing so. Prepayment penalties are more common in mortgage loans, but they can also show up if you pay off a personal loan early.
How much are prepayment penalties?
The cost of prepayment penalties varies a lot depending on the lender. Some lenders have a fixed fee. For instance, charging one or two months-worth of interest is not uncommon.
Others charge a percentage of the outstanding balance. For example, if you have a balance of $10,000 and the lender has a 2% prepayment penalty, you will have to pay an additional $200 to pay the loan early.
Do personal loans have early repayment charges?
Prepayment penalties are more common among mortgages, auto loans, and business loans than personal loans. However, there are still some lenders that charge them. Make sure you read the fine print before you agree to a personal loan.
Are prepayment penalties always legal?
No, they aren't always legal. Prepayment penalties are not popular with consumers, for obvious reasons. They make it harder for consumers to get out of debt. The Consumer Financial Protection Bureau (CFPB) has categorized them as risky loan features. In 2014, they went as far as to limit how much lenders can charge in prepayment penalties.
Some states go even further and ban prepayment penalties on all types of loans. However, banks are regulated by federal law, not state law. Therefore it is essential to do your research and ask your lender what hidden fees are included in your loan.
How can I avoid personal loan fees?
There are three main strategies to pay less interest on a personal loan: pay it off, negotiate a loan modification, and refinance the loan. A loan modification involves asking the lender for a reduction in the interest rate. These arrangements are extremely rare with personal loans.
Paying the loan is the easiest and most cost-effective way of paying less interest. Unless, of course, the lender charges a penalty for early payments. In that case, you will need to calculate the cost of paying the early and compare it to the savings in interest.
SuperMoney's loan offer engine allows you to get multiple loan offers from top lenders with one secure form makes it easy to find lenders that don't require payments for paying ahead of schedule. You can also compare other important terms, such as rates and loan amounts, without hurting your credit or wasting time on multiple application forms.
What does "no prepayment penalty" mean on a loan?
It means you can pay it off early without paying additional charges. Let's say you get a raise, and you want to get out of debt early. Having a personal loan that doesn't charge a prepayment penalty can make additional monthly payments and save you a lot of money in interest.
How do I know if there is a prepayment penalty?
We all know it is important to read the small print when signing a contract. That certainly applies to loan agreements. If you want to find out if your loan has a prepayment penalty, check the paperwork provided at the loan closing. Lenders are required to display these fees to borrowers, but they can sometimes be buried in the loan agreement's disclosures. In many cases, you can also look at your monthly payment statement or coupon book. Information on the prepayment penalties are often in the loan's promissory note or sometimes in an addendum to the note.
What Is a Promissory Note?
Promissory notes are financial instruments that include a written agreement to repay the lender a definite sum of money. These notes usually include all the terms of the loan, such as the principal amount, interest rate, maturity date, date, place of issuance, and any fees for early payments.
What types of prepayment penalties are there?
If you start digging into the terms used in loan agreements, some confusing terms begin to pop up. The early payment fee is one of them. What makes everything worse is that lenders have different terms for early repayment fees. Common conditions to look out for include, early repayment charge, early repayment penalty, early redemption fee, redemption charge, and a financial penalty.
How do you avoid early repayment charges on a personal loan?
An easy way to avoid charges for early payments is to only borrow money from lenders that don't charge them. The list above is a great place to start. We have selected the best lenders that don't charge them. In any case, it is always a good idea to ask the lender and carefully read the fine print of the loan agreement.
If you already have a loan with a prepayment penalty, you can either wait to pay off the loan or ask your lender for a waiver of the fee. Another option some lenders offer is a partial payment. This allows borrowers to pay a maximum amount every year without incurring in the prepayment penalty.
About the Author
SuperMoney
SuperMoney is the most comprehensive financial services comparison site around. We have published hundreds of personal finance articles and provide detailed reviews on thousands of financial products and services. Our unbiased advice and free comparison tools help consumers make smart financial decisions based on hard data, not marketing gimmicks.
Table of Contents
You might also like
Get Competing Personal Loan Offers
Compare real offers from multiple lenders.