What Is an Origination Fee on a Personal Loan?
Summary
Some personal loans include fees to cover the cost of processing your loan application. Learn more about origination fees.
In this article:
If you’re considering a personal loan, you may have uncovered a common, but possibly unfamiliar, financial term — origination fee. It can also be known as an underwriting, administrative or processing fee, depending on the lender. Before you choose a loan company, it’s important to understand what an origination fee is, why it’s charged and how it factors into your choice of lenders.
What is an origination fee?
A personal loan origination fee is a one-time, upfront operational charge that may cover the lender’s cost of processing your loan and disbursing the funds.1 Depending on the state where you open your loan, this could be a flat fee or a percentage of your total loan amount. Some states may not have an origination fee.
How much can origination fees cost?
Origination fees typically range from 1% to 15% of the total loan amount, but sometimes it’s expressed as a flat fee. Depending on your state and lender, these fees can either be deducted from or added to your loan. Either way, you won’t need to pay the fee out of pocket.
How are origination fees calculated?
While the criteria may vary from lender to lender, a personal loan origination fee is determined by the following factors:
The amount and length of your loan. Since origination fees are based on a percentage of the loan total, a higher loan amount usually means a higher fee. For example, a 5% origination fee on a $5,000 loan is $250, while the same fee on a $10,000 loan would be twice as much.
Your credit score and credit history. Having good credit not only makes it easier to get approved for a personal loan, it can also result in a lower origination fee.2
You have a cosigner for your loan. If you’re working on making your credit score stronger, adding a cosigner might help you get the loan you need. Another person’s income and good credit history on your loan application can increase your chances of getting more favorable loan terms, including a lower origination fee.
Should I pay an origination fee?
The origination fee is usually financed as part of your loan. This means the fee is part of your principal balance, and you’ll pay interest on it. To help you compare loans with and without origination fees, be sure to look at the annual percentage rate (APR). APR includes the loan’s interest and other financed charges, including origination fees. Keep in mind that the length of your loan matters too. A longer repayment term can mean you’re paying more over the life of the loan, even if two loans have similar APRs.
Do all personal loans have origination fees?
Not all loans have origination fees. However, when a loan does not have one, the lender sometimes charges additional fees or a higher APR, which might end up costing you more over the duration of your loan.3 A loan’s APR may not the same as the interest rate. If you’re applying for a personal loan in a state that doesn’t charge fees, the interest rate and APR would be the same.
How do I avoid loan origination fees?
While they aren’t generally negotiable (and can’t be waived), some lenders don’t charge personal loan origination fees. However, they may have additional costs, higher interest rates or different eligibility requirements. If you pre-qualify for a loan that fits your needs, but it has an origination fee, don’t let that be a deal breaker. Do your research and compare loan offers from multiple lenders. Reputable lenders like OneMain Financial are clear about their costs and requirements upfront.
Compare and contrast
Selecting a personal loan is an important financial decision. When comparing offers, it's not only the APR that matters. Consider repayment terms, how much you want to borrow, how soon you'll receive funds, and any restrictions on loan proceeds before signing. Ask questions, do your homework and make sure you’re getting the best offer for your needs.
1. https://www.nerdwallet.com/blog/loans/what-is-an-origination-fee/
2. https://www.experian.com/blogs/ask-experian/what-is-an-origination-fee/
3. https://www.bankrate.com/loans/personal-loans/personal-loan-origination-fees
This article has been updated from its original posting on June 15, 2020. Kia Jackson contributed.
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
