What Is a Personal Loan Origination Fee?
Personal loans often come with origination fees. Learn what they are, how they affect the cost of borrowing and how you may be able to avoid them.
An origination fee is a charge imposed by a lender to cover the cost of processing and funding a loan. Also known as an administration fee, it is usually expressed as a percentage of the amount borrowed, although some lenders charge a flat fee instead.
Unlike an application fee, origination fees are only charged if your loan is approved and funded. The fee is typically deducted from the loan proceeds before the money is sent to your bank account, meaning you won't pay it separately.
Example
If you take out a $10,000 loan with a 5% origination fee, the lender will deduct $500 before sending the funds. You will receive $9,500 in your bank account but still be responsible for repaying the full $10,000 loan balance.
Do origination fees affect my monthly payment or how much interest I pay?
Not directly.
Because origination fees are usually deducted before you receive the funds, they do not increase your monthly payment or change the interest rate on the loan.
However, they can still increase the overall cost of borrowing. For example, if you need $10,000 for a home repair and the lender charges a 5% origination fee, you may need to borrow slightly more than $10,000 to ensure you receive the amount you actually need. Borrowing more money means paying interest on a larger balance, which increases the total cost of the loan.
This is one reason origination fees are often overlooked. Borrowers tend to focus on the interest rate and monthly payment while paying less attention to the amount being deducted upfront.
APR vs. Interest Rate
If one lender offers a lower interest rate but charges a large origination fee, comparing loans can quickly become confusing.
Fortunately, lenders are legally required to disclose the Annual Percentage Rate (APR). APR is a broader measure of borrowing costs that includes the interest rate as well as most unavoidable fees, including origination fees. As a result, APR usually provides a more accurate picture of the true cost of a loan than the interest rate alone.
You can explore these different scenarios with our free Interest Rate vs APR calculator.
How big are origination fees?
Like interest rates, origination fees are often influenced by your creditworthiness. They can also vary based on the type of loan and, in some cases, your state of residence.
Lenders that serve borrowers with lower credit scores often charge the highest origination fees. For example, some personal loan lenders charge origination fees of up to 10% of the loan amount (e.g. Lending Point).
On the other hand, borrowers with excellent credit may qualify for loans that have no origination fees at all. Many lenders that target prime borrowers advertise loans with no upfront fees (e.g. Citi), allowing borrowers to receive the full loan amount.
How can I avoid origination fees?
The simplest way to avoid origination fees is to shop with lenders that do not charge them.
Improving your credit profile can also help. Borrowers with stronger credit scores generally qualify for better loan offers, including lower fees and, in some cases, no fees at all.
That said, don't focus exclusively on origination fees. A loan with no fees is not necessarily cheaper than one that charges them. Some lenders offset lower fees with higher interest rates, while others do the opposite.
The best approach is to shop around for multiple loan offers and pay close attention to the APR. Most online lenders now allow you to check your rate without affecting your credit score, making it easy to compare your options before committing to a loan.
You can also use for personal loans review page to identify lenders that don't charge origination fees.