How to avoid hidden charges on personal loans

Updated

Nov 23, 2025 6:25 PM

Written by Nathan Cafearo

Understand UK loan fees, avoid hidden charges, and compare APRs smartly. Learn about prepayment penalties, processing and arrangement fees, and the Key Fact Statement to protect your wallet.

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Why the small print matters more than the headline rate

Headline rates are designed to catch your eye, but real borrowing costs live in the small print. In the UK, personal loans often come with add-on fees that can change the picture after you apply. Processing or arrangement charges might be rolled into the loan or taken upfront. Early repayment can save interest, yet some lenders apply prepayment penalties when you pay back more than £8,000 in a year and they incur a cost. If you do not spot these details before you sign, you risk paying more than expected over the life of the loan.

Understanding APR is your first filter. It includes interest and most upfront charges, helping you compare options. But APR does not capture everything. Late fees, overpayment penalties above permitted thresholds, and charges for missed or changed payments may fall outside the headline figure. That is why the legally required Key Fact Statement is so important. It lists all known costs before the lender releases funds, giving you a single place to verify the numbers.

The UK has tightened rules around transparency, and reforms to the Consumer Credit Act aim to clarify how lenders disclose commissions and charges. Even so, millions of borrowers still report being caught out by fees they did not expect. The lesson is clear. Ask direct questions, read the Key Fact Statement, and confirm how fees are calculated in real pounds and pence. If a lender seeks money before offering a loan, walk away. Legitimate UK lenders do not demand upfront payments.

Kandoo, as a UK-based retail finance broker, sees daily how clarity helps borrowers choose better. The goal is not to scare you away from credit. It is to ensure that when you borrow, you do so with open eyes and a firm grasp of total cost, not just the monthly figure.

Banner image idea: A focused borrower using a magnifying glass to review loan documents by a laptop - a calm, careful check before committing.

The right loan is the one with costs you understand, not surprises you discover later.

Who will benefit from this guide

If you are considering a personal loan for home improvements, consolidating debt, or a significant purchase, this guide will help you compare deals with confidence. It is written for UK borrowers who want clarity on processing fees, arrangement charges, and early repayment costs, and who prefer a structured checklist over fine-print guesswork. It also suits those who have been stung before and want to avoid repeat mistakes by mastering the Key Fact Statement and understanding APR. Whether your credit is spotless or rebuilding, these principles apply across bank loans, online lenders, and retail finance options.

The terms that really matter

APR (Annual Percentage Rate) - The annualised cost of borrowing. Includes interest and most upfront fees, but not late fees or future penalty charges.
Processing fee - A charge for handling your application. Can be a flat amount or a percentage. May be added to your loan or paid separately.
Arrangement fee - A setup fee some lenders apply when the loan is approved. Not universal, so compare.
Early repayment charge - A penalty some lenders apply if you repay early or overpay above £8,000 in a year when they incur a cost.
Key Fact Statement - A mandatory document from regulated UK lenders that outlines all costs before funds are released.
Representative APR - The rate that at least 51% of accepted applicants must get. Your personal rate can be higher.
Total amount payable - The full cost you will repay, including interest and included fees, over the loan term.
Cooling-off period - A period after signing during which you can cancel under UK rules. Check timings and conditions.

Ways to keep costs down

Compare by APR and total amount payable, not just the monthly figure.
Ask the lender to confirm in writing any processing, arrangement, or brokerage fees and whether they are added to the loan.
Check early repayment rules: how overpayments work, any £8,000 annual threshold, and how penalties are calculated.
Read the Key Fact Statement line by line before funds are released and query anything unclear.
Avoid any lender asking for money upfront before offering a loan - a common scam signal.
Choose transparent lenders that advertise no hidden fees and publish clear fee policies.
Use soft-search eligibility tools to avoid multiple hard checks that can raise your rate.
Consider shorter terms if affordable to reduce total interest - verify no early repayment traps.

Pounds and pence - what it could mean for you

Item	What it is	Typical impact	Risk level	How to mitigate
Processing fee	Application handling charge	£0-£300 or 0%-3% added	Medium	Confirm if added to loan or paid upfront
Arrangement fee	Setup cost on approval	£0-£250 typical	Low-Medium	Prefer lenders with no arrangement fee
Early repayment charge	Fee for paying early or overpaying	Often applies above £8,000 in a year if lender incurs a cost	Medium-High	Plan overpayments within free allowance and get the exact formula
Late payment fee	Charge for missed or late instalments	£12-£30 per incident typical	High	Set up Direct Debit and payment reminders
Interest over term	Cost of borrowing across the loan	Hundreds to thousands depending on rate and term	Medium	Choose shorter terms and lower APR

Are you likely to qualify

Eligibility varies by lender but typically hinges on income stability, credit history, and existing commitments. Strong credit and a low debt-to-income ratio improve your chances of a lower APR and fewer add-on fees. Some lenders reserve the best rates for homeowners or for specific borrowing amounts and terms. You may still be approved with a thinner file or past blips, but the rate may be higher and the lender may add processing costs to offset risk. Using a broker can help you find lenders whose criteria fit your profile without scattering hard searches. Always verify that the lender is authorised and regulated, and check the Key Fact Statement for a clear breakdown of all charges before funds are released.

From application to funds - the practical steps

Use a soft-search tool to check indicative eligibility.
Compare APR and total amount payable across lenders.
Ask about all fees and early repayment rules in writing.
Submit documents and verify identity and income.
Review the Key Fact Statement carefully for all charges.
Sign only when numbers match your expectations.
Set up Direct Debit and plan overpayments within limits.

Upsides and trade-offs at a glance

Aspect	Pros	Cons
Transparent lenders	Clear costs, easier comparison	May not always be the cheapest headline rate
Overpaying	Shorter term, less interest paid	Possible penalties above £8,000 a year if costs arise
Broker support	Matches you to suitable lenders	Some brokers charge fees - confirm upfront
Longer terms	Lower monthly repayments	Higher total interest and more time at risk of fees

Read this before you sign anything

Before committing, request the full fee schedule and confirm whether fees are rolled into the loan. Ask for the early repayment calculation in pounds, including any £8,000 annual allowance and how the lender measures it. Ensure the APR and total amount payable in your Key Fact Statement match the illustration and your expectations. If something is unclear, pause and get it clarified in writing. Be wary of lenders who push speed over transparency. If asked for money before the loan is offered, disengage and report it.

Alternatives worth weighing

0% purchase or balance transfer credit cards for short-term, planned spending with disciplined repayments.
Credit union loans with capped rates and community-based underwriting.
Overdrafts for very short-term gaps, used sparingly and repaid quickly.
Remortgaging or secured loans for larger sums - compare fees and long-term interest carefully.
Employer loans or salary advance schemes with transparent costs.

Questions people ask most

Q: Does APR include every fee I could pay? A: It includes interest and most upfront charges. It excludes late fees and some future penalties, so read the Key Fact Statement.

Q: Can UK lenders charge for early repayment? A: Yes, some can if you overpay above £8,000 in a year and the lender incurs a cost. Always confirm the formula before overpaying.

Q: What is the difference between processing and arrangement fees? A: Processing covers application handling. Arrangement relates to setting up the loan. Some lenders charge one, both, or neither.

Q: How do I spot a scam lender? A: Any request for money before a loan offer is a red flag. Check FCA authorisation and avoid upfront payment requests.

Q: Will comparing deals harm my credit score? A: Use soft searches to check eligibility without a hard footprint. Apply formally only when ready.

Q: Are there lenders with no hidden fees? A: Yes. Some UK lenders publish clear policies stating no hidden charges. Still, verify in the Key Fact Statement.

What to do now

List your borrowing need and budget, then compare two to three lenders using APR and total amount payable. Ask each to confirm fees and early repayment rules in writing. Read the Key Fact Statement before signing. If anything does not add up, pause and get advice rather than rushing to fund.

Important information

This guide provides general information only and is not personal advice. Eligibility, rates, and fees depend on your circumstances and lender criteria. Always read your Key Fact Statement and loan agreement before committing.