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.
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How common is a no-prepayment-penalty personal loan?
Many common fees are 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 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.
Credible
Why Credible is the best marketplace
Credible brings together a wide network of lenders. It provides a simplified application process and a user-friendly platform. Credible also shares comprehensive details about your loan offers, enabling you 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.
- Compare loans from multiple curated lenders
- Get prequalified loan offers in as little as 2 minutes
- Get funded within a few business days
- No option to apply for joint loans
| Rates (APR) | 6.99% – 35.99% |
| Loan amounts | $1,000 – $200,000 |
| Repayment terms | 1 – 10 years |
Eligibility requirements
- Soft credit check? Yes
- Minimum credit score: Varies
- Minimum income: Not disclosed
- States: Loan partners may not be available in all states
Repayment terms
Credible loans have repayment terms ranging from one to 10 years. Some lenders may charge a prepayment penalty if you pay your loan off early.
Upgrade
Why Upgrade is the best personal loan for fair credit
Upgrade caters to those with fair credit. In addition to its loan offers, it provides credit-health tools to help borrowers improve their scores.
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.
- Choose your monthly payment and loan term
- Joint applications accepted
- Loan funds may be available in as little as 1 day
- Smaller loan maximum limit
- 1.85% to 9.99% origination fee
| Rates (APR) | 8.49% – 35.99% |
| Loan amounts | $1,000 – $50,000 |
| Repayment terms | 2 – 7 years |
Eligibility requirements
- Soft credit check? Yes
- Minimum credit score: 580
- Minimum income: Not disclosed
- States: All 50 states and Washington, D.C.
Repayment terms
Upgrade loans have repayment terms from two to seven years, and your monthly due date is adjustable to fit your budget. A short-term financial hardship program is available if you’re temporarily unable to manage payments.
Upstart
Why Upstart is the best personal loan for no credit history
Upstart is an excellent option if you have 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 will pay an origination fee. It states these fees range from 9% to 12%.
- Funding is available as soon as the next business day
- Borrowers with little to no credit history can still get approved
- No prepayment penalty if you pay your loan off early
- Origination fee of up to 12%
- Limited repayment term options
| Rates (APR) | 7.80% – 35.99% |
| Loan amounts | $1,000 – $75,000 |
| Repayment terms | 3 or 5 years |
Eligibility requirements
- Soft credit check? Yes
- Minimum credit score: None
- Minimum income: Not disclosed
- States: All 50 states and Washington, D.C.
Repayment terms
Upstart doesn’t offer as many loan terms as other lenders; you’ll pay your loan off over three or five years. You have the option to change your monthly payment due date and prepay your loan in part or in whole at any time, with penalty fee.
SoFi
Why SoFi is the best personal loan for good credit
SoFi doesn’t require any fees, so you can enjoy a more cost-effective loan experience. You can prequalify with a soft credit check, which won’t affect your credit score, ensuring a smoother and more transparent application process.
- No origination fees, late payment fees, or prepayment penalties
- Check rates in as little as 60 seconds
- Some borrowers may qualify for same-day funding
- Higher minimum loan amount
- Autopay discount is lower than what some lenders offer
| Fixed rates (APR) | 8.99% – 29.99% with all discounts |
| Loan amounts | $5,000 – $100,000 |
| Repayment terms | 2 – 7 years |
Eligibility requirements
- Soft credit check? Yes
- Minimum credit score: 660
- Minimum income: Not disclosed
- States: All 50 states and Washington, D.C.
Repayment terms
SoFi personal loans feature terms from two to seven years. If you enroll in autopay, you’ll get a 0.25% rate discount. There’s no penalty if you decide to pay your loan off early.
LightStream
Why LightStream is the best personal loan for excellent credit
LightStream is great for those with excellent credit. It offers some of the most competitive interest rates available. Aside from this advantage, LightStream offers 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.
- Rate match guarantee ensures that you get the best rate possible
- Same-day funding may be available
- Take advantage of a longer repayment term if you need lower payments
- No option to prequalify or check rates with a soft credit pull
- Minimum loan amount is $5,000
| Rates (APR) | 7.49% – 25.49% |
| Loan amounts | $5,000 – $100,000 |
| Repayment terms | 2 – 12 years |
Eligibility requirements
- Soft credit check? No
- Minimum credit score: 660
- Minimum income: Not disclosed
- States: All 50 states and Washington, D.C.
Repayment terms
LightStream offers some of the longest repayment terms of any lender, giving you up to 12 years to repay your loan. You can pay your loan off early, without a prepayment penalty and rate discounts can help bring the cost of your loan down.
Benefits of prepaying your personal loan
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 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 fewer bill to pay each month, you’ll have more flexibility to work toward 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.
- Research lenders: Take time to carefully vet lenders before you even apply. Most list applicable fees on their websites, so you can determine whether they charge prepayment penalties.
- 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.
- Submit an application: After choosing a lender, submit your application. This triggers a hard pull on your credit score and may require documentation such as pay stubs and bank statements (or electronic access to your accounts). Most lenders, particularly those online, provide same-day decisions.
- Review your loan agreement: Even if you’ve been prequalified, check the final loan terms. Look at fees and penalties, as well as the rate and monthly payment.
- 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.
- Start making payments: Finally, you’ll begin making payments on the due date set 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.
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.
Crystal Rau, CFP®
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 meet immediate needs, but you might need to repay the loan in full if you leave your employer, or it may be 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 the best personal loans with no prepayment penalty
About our contributors
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Written by Lauren WardLauren Ward is a personal finance writer who regularly covers topics like mortgages, real estate, tax relief, home equity, business loans, and investing.
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Edited by Amanda HankelAmanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing.
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Reviewed by Crystal Rau, CFP®, CRPC®, AAMS®Crystal Rau, CFP®, CRPC®, AAMS®, is a Certified Financial Planner based in Midland, Texas. She is the founder of Beyond Balanced Financial Planning, a fee-only registered investment advisor that helps young professionals and families balance living their ideal lives with being good stewards of their finances.