What is a Personal Loan Origination Fee?

A personal loan can help you cover the cost of an emergency, pay for a purchase, or refinance high interest rate debts. But before you take out a personal loan, you’ll want to understand the total cost of borrowing money and how it might affect your personal finances. Though your interest rate determines the majority of the cost, the loan’s origination fee is important to consider.

What Is a Personal Loan Origination Fee?

A personal loan origination fee is a one-time, upfront fee you may have to pay when taking out a personal loan. The fee is generally taken out of the funds you receive or added to the total loan amount. Origination fees can go by many names: some lenders might call it an administrative, processing, financing, or underwriting fee.

How Personal Loan Origination Fees Work

Origination fees can work a little differently depending on the lender and type of loan. Understanding how your personal loan’s origination fee works can help you compare loan offers.

What does the origination fee consist of?

An origination fee is simply an additional cost that’s added to the total amount financed. The “amount financed” includes your loan amount plus any charges associated—like origination fees. Some lenders charge a flat fee for personal loans, though most origination fees are a percentage of the total loan amount.

When do you pay the origination fee?

You’ll pay the origination fee on a personal loan once the lender approves your application and disburses the loan proceeds. If you apply for a loan and aren’t approved, or if you’re approved but decide not to accept a loan offer, you don’t have to pay the fee.

How do you pay the origination fee?

In most cases, the origination fee is included as part of your total loan amount. That means if you take out a loan for $10,000 with a 5% origination fee, you’ll receive $9,500 but repay $10,000, not including interest.

How Is a Personal Loan’s Origination Fee Determined?

Lenders often have a range for the origination fee they charge on personal loans. Some lenders charge borrowers as much as 10%, but LendingClub Bank’s origination fees range from 3% to 6%. In most cases, the fee depends on several factors.

Your creditworthiness

Personal loans are often unsecured loans, and lenders make loan decisions based on borrowers’ creditworthiness. Your credit score and information from your loan application—like monthly income and expenses—can impact your ability to qualify for a loan, the loan’s interest rate, and the origination fee.

Personal loan amount

The size of the loan can also impact the interest rate and origination fee on your loan offers. Because the origination fee is often a percentage of the loan amount, borrowing more than you need can lead to paying more in fees.

Duration of loan

A loans’ repayment terms—how long you have to repay the loan—may influence the loan’s interest rate and origination fee. A loan with a shorter term may cost you less overall, but your monthly payment will be higher.

Paying the Origination Fee: 4 Things to Consider

Before taking out a personal loan, you may want to get offers from several lenders and carefully review the loan agreements. WIth origination fees in mind, consider:

1. The loan’s interest rate and APR

A loan’s interest rate determines how much interest you’ll pay. However, the loan’s annual percentage rate(APR) takes the interest rate, repayment term, and origination fees into account, which can give you a better understanding of your total cost per year. Compare loans’ APRs—which lenders must disclose—to see which offer is the least expensive overall.

2. How much you’ll receive

Most lenders will include the personal loan origination fee in your loan’s proceeds. That means if you apply for a $10,000 loan, and the lender charges a 5% origination fee, you will receive $9,500 in your account, but have to pay back $10,000. Keep this in mind as you determine the size of the loan you want to apply for or accept.

3. Specific loan information and features

Consider the features and benefits that some lenders may offer over others. For example, if you take out a personal loan for debt consolidation, some lenders will send the money to your bank account, and you’ll need to pay off the debts yourself. Others, like LendingClub Bank, can make payments directly to your creditors.

4. Repayment plans

Lenders offer various repayment terms, and the loan term you choose can impact your monthly payment and APR. Having several options can be helpful because it lets you compare the overall cost and monthly payment of each loan.

Personal Loan Origination Fee FAQs

Can you negotiate the origination fee?

You may be able to negotiate the origination fee on certain types of loans, like mortgages. With others, like federal student loans and personal loans, the fee is often not negotiable.

Should you pay a loan origination fee?

An origination fee is only a part of the total price you’ll pay when taking out a personal loan. You may want to consider the total cost of the loan and the other important factors, like interest rate and monthly payment amount, to determine which loan will be best.

Why is the loan origination fee so high?

Loan origination fees can vary depending on a variety of factors. You may receive loan offers with high origination fees if you have a poor credit score or a high debt-to-income ratio when you apply for a loan.

How can I lower my loan origination fee?

You may be able to qualify for a lower origination fee if you can improve your credit before applying. Having good to excellent credit can help you receive the best loan terms. If you struggle with creditworthiness, applying with a co borrower can improve your chances at qualifying for a lower-cost loan.

Do all lenders charge origination fees?

Some lenders offer personal loans without an origination fee. However, you still want to compare the personal loan offers. A loan with no origination fee and a high interest rate could be more expensive than a loan with an origination fee and lower interest rate.