Image by Getty Images; Illustration by Bankrate
Key takeaways
- Choosing a short-term loan over a long-term loan may get cash in your hands quickly, but you’ll pay for that convenience with higher interest rates and more fees.
- If you opt for a personal loan with no prepayment penalties instead, you can borrow money with a lower interest rate and pay it back in fixed monthly installments.
- As you shop for a personal loan, make sure to compare interest rates, repayment terms, monthly payments and loan fees.
Short-term loans like payday loans and title loans offer cash quickly, but there’s a catch. You’ll pay significantly more interest with these loans thanks to their sky-high rates, and you’ll pay more loan fees overall.
As an alternative, some people turn toward personal loans with no prepayment penalties. These loans are payable in equal monthly installments over a period of two to seven years, and you typically have the option to pay the loan off early to save on interest.
To avoid a prepayment penalty, you’ll want to compare personal loan lenders that don’t have such penalties. There are multiple options to choose from, so find a lender that offers competitive rates, loan terms that fit your budget and limited fees.
What is a personal loan with no prepayment penalty?
A personal loan is an unsecured loan that lets borrowers access a lump sum of money and pay it back over anywhere from two to seven years. Interest rates for these loans are fixed for the duration of the term, so the monthly payments stay the same until the loan is paid off.
Personal loans with no prepayment penalty let borrowers pay back what they owe early without a penalty for doing so. This means you can borrow money for five years but pay it back in three. This strategy can add up to a lot of savings, depending on how early the loan is paid off and how interest is calculated over the loan period.
Best short-term personal loans with no prepayment penalty
You can find both banks and online lenders that offer personal loans with no prepayment penalty. This is only a small sample, so do additional research and compare multiple lenders. Make sure to check for other fees when determining the best fit for your needs.
| Lender | Loan amount | Terms | APR range* |
|---|---|---|---|
| Happy Money | $5,000%–$40,000 | 24–60 months | 8.95%-29.99% |
| LightStream | $5,000%–$100,000 | 24–240 months | 6.49%-25.29% with AutoPay |
| SoFi | $5,000%–$100,000 | 24–84 months | 8.99%-35.49% with AutoPay |
| Upstart | $1,000%–$50,000 | 36 or 60 months | 6.60%-35.99% |
| *Specific APRs are determined by each applicant’s credit profile as well as education or work history. |
Bankrate’s view
Happy Money puts customers first with its innovative approach to lending. Its personal loans are ideal for consumers looking to consolidate high-interest debts to save money, and borrowers also get exclusive access to tools that can help manage your finances more effectively.
While its funding times are a bit slower than what you’ll find with other online lenders, its minimum credit score requirement is on the lower end.
Pros
- Competitive rates and terms
- No application fees or hidden fees
- No late fees
Cons
- Only offers credit card debt consolidation
- High minimum loan amount starting at $5,000
- Origination fee applies
Bankrate’s view
LightStream offers some of the lowest interest rates on personal loans. Although you’ll need a good or excellent credit score and lengthy credit history to qualify, you could be eligible for a flexible loan that doesn’t come with spending restrictions or fees.
Keep in mind that shorter loan terms typically come with lower interest rates, which means it’s in your best financial interest to opt for a shorter repayment period. Lightstream personal loans also have no fees if certain requirements are met, such as enrolling in autopay.
Pros
- Same-day funding available
- No fees
- Rate Beat program offering .10 percent lower than competitor offers
Cons
- No option to prequalify
- Good to excellent credit required
- Long credit history required
Bankrate’s view
SoFi offers a seamless personal loan application experience with minimal fees to worry about. You can opt for an origination fee in exchange for a lower APR, and there are no prepayment penalties. This allows you to tailor your payments to your needs. SoFi also allows joint applications if you’re unable to qualify for a personal loan on your own, but the applicants must reside at the same address.
When doing business with SoFi, you’ll get free access to financial advisors, career resources and other virtual experiences and events designed to help you level up your finances.
Pros
- Prequalification available
- 0.50% autopay and direct deposit discount
- Same-day funding available
Cons
- High maximum APR
- No cosigner option
- Optional origination fee
Bankrate’s view
Upstart is worth considering if your credit is on the lower end. It doesn’t have a minimum credit requirement, and it offers a competitive starting APR. In addition, Upstart looks beyond your credit score and examines your education and work history to determine if you’re a good fit for a personal loan.
If approved for funding, you won’t pay a prepayment penalty if you pay the loan off early. Upstart may still charge an origination fee, and your interest rate can be on the high end if your credit score needs some work.
Pros
- Competitive minimum APR
- Low starting amount of $1,000
- Fast funding
Cons
- Origination fees may apply
- Only two loan terms available
- High maximum APR
How to compare personal loans with no prepayment penalty
When shopping for personal loans with no prepayment penalty, you’ll want to know what your total costs will be from beginning to end. This means looking at the terms associated with each lender and how they stack up.
- Compare personal loan interest rates: Your loan costs will largely be determined by your annual percentage rate (APR) and loan term. As you compare lenders and their rates, you can use a personal loan calculator to estimate your overall borrowing costs.
- Assess loan repayment terms: You should make sure a loan not only works comfortably within your monthly budget, but that it also offers terms that make sense for your financial situation and needs.
- Compare loan fees: Make sure to find a loan that does not charge exorbitant late fees or origination fees. Also check for hidden fees like application fees or annual fees.
By the end of the process, you’ll want to have compared personal loans based on the following factors:
Alternatives to a personal loan with no prepayment penalty
A personal loan with no prepayment penalty isn’t the only option to get the funds you need, but most alternatives are expensive, relatively risky or both. Some alternatives to personal loans include the following:
- Credit card cash advance: If you have a credit card with available credit, you can use it to meet your short-term financial needs. Just note that using your card for a credit card cash advance requires upfront fees. You’ll also lose the grace period on the card when you use it to get cash, meaning you’ll owe interest on the balance from day one.
- Bad credit personal loans: While you won’t get access to the best interest rates, many bad credit lenders do not charge prepayment penalties. These may also have short terms of 24 to 36 months, but if you need longer to repay, some offer terms up to 72 months.
- Payday loans: Payday loans cater to consumers with poor credit and should only be used as a last resort. Because repayment periods are typically within two weeks, payday loans frequently have high APRs, sometimes 400 percent or more. Most loans do not exceed $500 and are due on your next payday.
- Car title loans: Title loans allow you to borrow up to 50 percent of your car’s market value if you own it outright, but expect to pay a hefty interest rate and use your car as collateral, meaning you could lose it if you fall behind on payments.
Bottom line
A personal loan can help you get over a short-term financial hardship or cover an unexpected expense. When researching your options, confirm that the lender does not charge prepayment penalties and compare interest rates. Even if you get a lengthy repayment period with a higher interest rate, your payment will be more affordable – and you’ll have the ability to pay the balance in full early to save on interest.
If a personal loan isn’t a good fit, there are personal loan alternatives available. Be sure to consider the benefits and drawbacks of each to make an informed decision.
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