What is a personal loan origination fee?
An origination fee is a one-time charge some lenders take for processing a personal loan, usually a percentage of the loan amount. It's often subtracted from the money you receive, so a $10,000 loan with a 5% fee deposits $9,500. The fee is included in the APR, which is why APR is the best number to compare.
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Loan terms from 2 to 60 months. Rates vary depending on the lender, your credit and your state. Maximum APR is 35.99%.
How do origination fees work?
- The fee is set as a percentage of the loan amount or as a flat dollar amount.
- Most lenders subtract it from your loan, so you receive less than the amount you borrow and repay the full amount.
- Some lenders add the fee to your balance instead of subtracting it.
- Not every lender charges one. Your offer and loan agreement show the exact fee.
How do you borrow enough after the fee?
- Divide the amount you need by one minus the fee rate. If you need $10,000 and the fee is 5%, request about $10,527.
- Check the amount you'll receive on each offer, not just the loan amount.
- Use the CLO loan calculator to see the amount received, monthly payment and total cost together.
Is a no-fee loan always cheaper?
- Not always. A no-fee loan with a higher interest rate can cost more than a loan with a fee and a lower rate.
- Compare APR for the same amount and term, because APR includes the fee.
- If you plan to pay the loan off early, weigh the fee more heavily. It's usually charged up front and not refunded.
Try the numbers in the personal loan calculator, which shows the amount you receive after the fee.
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Common questions
Is the origination fee included in the APR?
Yes. APR includes required fees such as the origination fee, which is why a loan's APR can be higher than its interest rate.
Can I avoid an origination fee?
Some lenders don't charge one, and borrowers with stronger credit may qualify for lower fees. Compare offers on APR, which includes the fee, rather than choosing on the fee alone.
Is the origination fee refunded if I pay off the loan early?
Usually not. It's typically charged when the loan is funded. Check your loan agreement for the lender's terms on early payoff.
How much is a typical origination fee?
It varies widely by lender and credit profile, from no fee to several percent of the loan amount. Your offer shows the exact fee before you accept.
Sources
- What is the difference between a loan interest rate and the APR?, Consumer Financial Protection Bureau
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