How bad credit personal loan fees work & how to avoid them

Fees are an unavoidable part of borrowing any personal loan, but they can be especially high when you’re looking at bad credit loans. In addition to higher interest rates, a lender may have higher fees that make borrowing much more expensive. And while there are some fees you can avoid by paying on time, you won’t be able to avoid all of them.

Types of bad credit personal loan fees

While every personal loan will have fees, most are fixed and not based on your credit score. For example, late fees and prepayment penalties aren’t going to be higher for those with poor credit when compared to a lender that caters to those with good credit.

The only fee that changes based on credit is the origination fee, which not every lender charges. Depending on the lender you could also be charged a missing or late payment fee, a returned check fee or a penalty for making early payments.

Origination fee

An origination fee is the cost to process a loan and is typically non-negotiable. They range from 0 percent to 10 percent of the total loan amount and are usually deducted before you receive any funds.

For instance, if you borrowed a $10,000 loan with a 5 percent origination fee, you would receive $9,500. This means if you need a full $10,000, you will need to request slightly more than that to account for any origination fee the lender charges.

However, you should never have to pay a fee before receiving money for a loan. If a lender does try to charge a fee before your loan is funded, that could be a sign of a scam.

Late fee

Regardless of credit health, almost every lender will charge a fee if you are late on or entirely miss a payment. And because late payment fees are fixed,  having bad credit won’t affect what a lender charges you.

Like many fees, a late fee is non-negotiable. Your lender will outline the amount you owe — and any grace period you may be given — in your loan documents. Lenders also state their late fees in their online FAQs and on the terms and conditions page. When you’re choosing lenders, check websites to see how upfront each one is about its late fee. This can help you compare lenders before prequalifying.

NSF fee

A non-sufficient funds (NSF) fee, also called a returned check fee, is charged when your payment fails to process. This can be from not having enough money in your bank account when a lender withdraws your payment or from bouncing a check.

These are typically flat amounts and should be stated in your loan agreement. You can avoid these fees by ensuring you have enough money to cover your loan payment before you submit it each month. If you’re unsure of your ability to make the payment, talk to your lender immediately and ask if they have any hardship repayment options.

Less common fees

Origination fees, late fees and NSF fees are all common for bad credit loans. But there are a few fees you may see pop up from time to time depending on the lender.

• Application fees. Although rare, application fees are charged by the lender to the borrower as a way to cover the underwriting process. If the lender does charge an application fee, it’ll be a one-time fee and will be required when you submit the application.
• Prepayment penalty. A prepayment penalty is charged when you make an early payment or pay off your loan early. They are designed to recoup some of the interest the lender has lost, but they are fairly uncommon for personal loans.
• Processing fee. A processing fee may be charged when you pay with debit card, credit card or check. These are avoidable if you are able to link a bank account for manual or automatic payments.

How to avoid bad credit personal loan fees

Of the three common fees, an origination fee is the one that can detract from the overall value of the loan, and while most  bad credit lenders charge origination fees, you can find lenders that may carry more affordable fees. Since most lenders offer prequalification, you can see how much a lender plans on charging you and pick the one that has the lowest fee.

Late fees and NSF fees are generally avoidable. If you think you might face a late payment fee, there are two things you can check: the lender’s grace period and deferment options.

• A grace period is how long you have before the payment is considered late. In some circumstances, a lender may have a grace period of a few days after your due date before it charges a late fee.
• If you are facing a short-term financial setback, ask about the lender’s deferment options. This will let you skip a few payments, though they will be tacked on at the end of your loan term.

Consider improving your credit score before you apply if you aren’t in dire need of a loan. This will help you qualify for lenders that have lower fees and may even help you score a more competitive rate.

How fees differ from standard personal loans

The fees for a bad credit loan don’t differ from a personal loan for good credit, but they’ll likely be much higher. However, it’s not likely that a lender will charge more fees if you don’t have perfect credit, but you can expect higher late payment or NSF fees when you borrow from a bad credit lender.

Every lender has its own fee schedule, which is why comparing your options is so critical. By knowing how much a lender will charge before you take out a loan, you will be better prepared for any fees that do come up. This will help you plan around the cost or find a lender that charges less.

The bottom line

Fees are standard on all personal loans but may be higher when you have less-than-ideal credit. You may not be able to avoid them entirely, but you can reduce the amount you pay by comparing top lenders.

Consider both the interest rate and fees the lender charges when making a decision. And remember — even if a lender has higher fees, a lower interest rate may make a loan more affordable. To determine which lender is the best fit for your credit situation, prequalify for at least two lenders to make sure you’re scoring the most competitive rates.