Personal Loans With No Prepayment Penalty

Loan prepayment is when a borrower pays off an installment loan ahead of the schedule set by the lender. Some lenders charge a prepayment penalty, either as a percentage of your remaining loan balance or as a portion of the outstanding interest payments on the loan. 

If you’re looking for financing, consider focusing on no-prepayment-penalty personal loans to avoid costs for an early payoff. Keep reading for our recommended lenders, plus the benefits of choosing a loan without a prepayment penalty. 

How common is a no-prepayment-penalty personal loan?

There are many common fees associated with personal loans, including origination fees and late payment penalties. However, prepayment penalties are becoming increasingly rare for personal loans.

The reason lenders may charge a prepayment penalty is to cover administrative costs of financing the loan and to make up for future lost interest. Any prepayment penalty will be outlined in your loan agreement and shouldn’t come as a surprise.

While there aren’t any federal laws regulating this practice, state laws vary. In California, for instance, prepayment penalties on consumer loans were outlawed in 2020. 

This type of penalty is more common with mortgage loans. Many lenders assess a prepayment penalty for payoffs within the first five years of a home loan. However, some states restrict this practice as well. It’s best to check your local laws before applying for any type of loan. 

Best personal loans with no prepayment penalty

We like the following five lenders’ no-prepayment-penalty personal loans. Each one excels in a different niche, ensuring a range of borrowers can find the right fit for their financial needs.

Lender	Best for
LightStream	Excellent credit
SoFi	Good credit
Credible	Marketplace
Upgrade	Fair credit
Upstart	Little to no credit

LightStream: Best for excellent credit

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LendEDU rating: 4.8 out of 5

• Competitive interest rates for high-credit borrowers
• Wide range of loan purposes accepted
• Quick application and approval process

LightStream is terrific for those with excellent credit ratings. It offers some of the most competitive interest rates available. Aside from this advantage, LightStream entertains a wide range of loan purposes and ensures a quick application and approval process.

With no fees—including prepayment penalties—you can feel confident you won’t overpay to borrow from LightStream. Because the lender doesn’t allow borrowers to prequalify for a loan without a hard credit check, which can lower your credit score, we recommend LightStream for excellent-credit borrowers who are confident they’ll be approved.

SoFi: Best for good credit

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LendEDU rating: 5 out of 5

• No fees
• Soft credit check available
• Competitive rates

SoFi enhances its appeal by not charging any fees, allowing borrowers to enjoy a more cost-effective loan experience. Borrowers can prequalify with a soft credit check, which won’t impact their credit score, ensuring a smoother and more transparent application process.

This, coupled with the absence of prepayment penalties, positions SoFi as a top choice for those seeking flexible and straightforward personal loan options.

Credible: Best marketplace

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LendEDU rating: 5 out of 5

• Large network of lenders for comparison
• User-friendly platform for easy application
• Comprehensive loan offer details

Credible, with an impressive editorial rating, brings together a robust network of lenders. Known for its simplified application process, it provides a user-friendly platform. Along with this simplicity, Credible assures comprehensive details about loan offers, enabling borrowers to make informed decisions.

Credible is upfront about the offers it shows you from its lender partners, and it states that none of its partners charges a prepayment penalty.

Upgrade: Best for fair credit

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LendEDU rating: 4.9 out of 5

• Accepts borrowers with fair credit
• Offers credit-health tools
• Flexible loan terms

Upgrade caters to those with fair credit. Besides its loan offers, it provides credit-health tools to assist borrowers in improving their scores. Upgrade’s flexible loan terms meet diverse requirements.

You can prequalify and see your likely rates without a hard credit check. You won’t pay a penalty to pay off your loan early—but you will pay an origination fee of 1.85% to 8.99%. These fees are common for personal loans if you have poor-to-fair credit.

Upstart: Best for little-to-no credit

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LendEDU rating: 4.8 out of 5

• Uses AI for risk assessment
• Accepts borrowers without a credit history
• Quick disbursement of loan funds

Upstart is a solid option for borrowers with little-to-no credit. Using artificial intelligence for risk assessment, it will accept borrowers without a credit history based on other criteria, such as education and employment.

Upstart doesn’t charge a prepayment penalty, but you might pay an origination fee. It states these fees range from 0% to 12%. 

Benefits of personal loan prepayment 

There are several reasons to consider getting a no-prepayment-penalty personal loan and paying off your balance early. 

Save money on interest

The biggest benefit of paying off your loan early is to lower the amount of interest you pay. Personal loans are installment loans and usually come with fixed interest rates. Payments are spread out over your loan term with the same percentage of principal and interest each month. 

Unlike mortgage loans, which front load interest in earlier payments, personal loans distribute interest equally. That means the sooner you pay off your loan, the more you’ll save. 

Here’s an example of how much a borrower could save on a $12,000 loan with 12% APR. With the original five-year term, they would pay over $4,000 in interest—that’s a third of the original loan amount.

But by shaving off just one year of payments, the interest paid drops to just under $850.

Payoff time period	Total interest paid	Amount saved
5 years (original term)	$4,016	$0
4 years (1 year early)	$3,168.29	$847.71
3 years (2 years early)	$2,348.58	$1,667.42
2 years (3 years early)	$1,557.16	$2,458.84
1 year (4 years early)	$794.23	$3,221.77

Lower your debt-to-income ratio

Prepaying your personal loan also lowers the amount of debt you owe overall. When it comes time to finance a larger purchase, such as a house, you may qualify to borrow more than you would with that loan balance.

Lenders look at your debt-to-income ratio (DTI), which entails comparing your monthly income to your monthly debt payments. If you don’t have a personal loan payment, you could put more money towards a mortgage payment.

Gain financial flexibility

With one less bill to pay each month, you’ll have more flexibility to work towards other financial goals. That same $12,000 loan with a five-year term and 12% APR, for instance, has a monthly payment of $266.93.

Putting that same amount in a high-yield savings account for five years can significantly boost your savings. With a 5.00% APY and monthly deposits of $267, you’d have $18,447 in savings at the end of five years with $2,160 in earned interest. 

Using your money to save rather than pay off debt not only saves you money, but can grow your bank account over time. 

How to get a personal loan with no prepayment penalty

You’ll find plenty of options for prepayment penalty-free personal loans from banks, credit unions, and online lenders. Here’s what to expect in the application process and approximately how long it will take—although the exact details vary by lender. 

1. Research lenders: Take time to carefully vet lenders before you even apply. Most list applicable fees on their websites so you can determine whether or not they charge prepayment penalties. 
2. Compare prequalification offers: You can quickly get prequalified with several lenders before you formally apply. That lets you see how much you can borrow, and what rates and fees each lender will charge. All of these numbers can vary, so it’s important to compare your options. 
3. Submit an application: After choosing a lender, submit your application. This triggers a hard pull on your credit score and may require documentation like pay stubs and bank statements (or electronically connecting to your accounts). Most lenders, particularly those online, provide same-day decisions. 
4. Review your loan agreement: Even if you’ve been prequalified, check the final loan terms outlined in your loan agreement. Look at fees and penalties, as well as the rate and monthly payment. 
5. Sign and receive funds: If you’re happy with the loan terms, you can electronically sign and return your documents. Then, you’ll receive your loan funds in a bank account. Depending on the lender, this could happen the same day or take up to a week. 
6. Start making payments: Finally, you’ll make payments starting on the due date established by your lender. To pay off the loan early, consider making extra payments or saving up to pay off the balance with a lump sum. 

Ask the expert

Crystal Rau

CFP®

Taking out a personal loan with a prepayment penalty makes sense if it will move you forward financially, and it may be the only option if you have poor credit. This could mean lowering your overall minimum payments to help you budget for other items (increases your cash flow)or lowering the total cost of your debt over a specific time frame. 

Alternatives to personal loans

Personal loans without prepayment penalties provide flexible repayment options, but it may be worth considering other financial products that may better suit specific financial needs.

Peer-to-peer lending

As an alternative to banks or credit unions, peer-to-peer lending can offer lower interest rates and flexible loan terms. However, these loans may have higher approval criteria and could take longer to access compared to personal loans.

Credit union loan

Offering lower rates and prioritizing members over profits makes credit union loans a worthwhile alternative. However, they may require membership and have slower approval processes than online personal loans.

Cash advance app

For small short-term loans, cash advance apps can be useful. But borrowing from these apps can come with high fees, and they don’t offer the same large loan amounts as personal loans.

Credit card

Credit cards offer immediate access to funds but often come with higher interest rates. In contrast, personal loans provide fixed repayment schedules and can have lower rates.

401(k) loan

Borrowing from a retirement plan may cater to immediate needs, but you could need to repay your loan in full if you leave your employer, or your loan is considered an early withdrawal. This can have tax penalties and diminish long-term retirement savings, which isn’t a concern with personal loans.

Home equity loan or line of credit

Tapping your home equity can provide significant funds for low interest rates, but it puts your home at risk for repossession if you default. Most personal loans don’t require collateral and could be less risky.

Recap of personal loans with no prepayment penalty

• Best for excellent credit (4.8/5): LightStream
• Best for good credit (5/5): SoFi
• Best marketplace (5/5): Credible
• Best for fair credit (4.9/5): Upgrade
• Best for little-to-no credit (4.8/5): Upstart