Late repayments can cause you serious money problems. See our debt help guides.
What fees do loans normally have?
When you borrow money, you’ll generally need to pay it back with interest. Although you might not think of it as a fee, the interest rate is usually how lenders cover their costs and make a profit.
In the world of personal loans, the key figure that lenders use to promote their products is the “annual percentage rate” (APR). The APR is designed to provide an annual summary of the interest you’ll pay, plus any mandatory fees, and must be calculated by all lenders in the same way. This makes it a handy benchmark for consumers looking to compare loans.
Aside from the interest, the main fees (that won’t be included with no-fee loans but may feature on other personal loans) are:
If you’re considering a secured loan (that’s where you put up your house as collateral in order to borrow more or to get a better rate), then you’ll normally incur a broker fee too.
What is APR?If you’re comparing any credit-based products, it won’t be long before you’ll come across the Annual Percentage Rate (APR). This figure is designed to provide an annual summary of the cost of a loan. It takes into account both interest and any mandatory charges to be paid (for example an arrangement fee) over the duration of a loan.
All lenders must calculate the APR of their products in the same way, and must tell you the APR before you sign an agreement, so for consumers it can be a handy tool for comparison.
Bear in mind, however, that lenders are only obliged to award this rate to 51% of those who take out the loan – the other 49% could pay more. That’s why it’s often referred to as the representative APR.
How do loans with no fees work?
Personal loans without fees won’t come with a set-up fee. This means the interest rate and the APR will be the same.
However, nearly all of these products still do charge late payment fees. It’s never a good idea to accept a loan where you’re not confident about making the repayments on time. Some will also continue to charge interest on early repayments up to two months beyond the date on which the amounts were paid.
What’s more, lenders tend to up the interest rate on their “no fee” products to make up for the shortfall from not charging a set-up fee. In this case, it could be argued that the administration costs are simply spread over the term of a loan, rather than charged as a one-off fee.
Pros and cons of no-fee loans
- Easier to understand how much you’ll pay
- Less hassle to organise
- Set monthly repayments
- Can be deceptive, as they’re not always the cheapest deal
- Strict eligibility criteria
- Other fees may still apply e.g. late or early repayment charges
ExampleHere’s a scenario that a typical borrower may face.
Samantha wants to borrow £5,000 over two years.
Although Lender A is advertising a lower interest rate, the total amount payable is higher than Lender B’s deal once the set-up fee is considered. The easiest way to avoid being misled when comparing deals like this is to compare the “total amount payable” or APR of the two deals. These will both take interest and fees into account.
How to compare loans with no fees
As well as comparing the “total amount payable” and APR, have a look at the minimum eligibility criteria. It’s no use applying for the product if you don’t meet the criteria.
Consider the late repayment charges, too. These tend to be punitive, plus there will be added interest – and damage to your credit score. It’s unwise to accept any loan unless you’re certain you can meet the repayments.
Common requirements for getting a personal loan with no upfront fees
Common requirements often listed among lenders’ minimum eligibility criteria include:
- You’re over 18 years old
- You have a bank account
- You have proof of employment or regular income
- You agree to go through a credit check
Frequently asked questions
Will you be approved?
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