What Is an Origination Fee on a Personal Loan?
Summary
In some states, lenders include an origination fee for personal loans to cover the cost of processing the 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: an origination fee. Depending on the lender, an origination fee can also be known as an underwriting, administrative or processing fee. Before you choose a lender and submit a loan application, it’s important to understand what an origination fee is, why it’s charged and how it factors into your loan.
What is a loan origination fee?
A personal loan origination fee is a one-time, upfront fee a lender may charge to process an application and set up the loan. Some states may not permit a lender to charge an origination fee. If you get a OneMain personal loan, you may be charged an origination fee where permitted by law.
Not all personal loans have origination fees, so it’s important to compare lenders and check the annual percentage rate (APR), which is the total cost of the loan.
How much are loan origination fees?
Origination fees vary by state and lender. At OneMain, for instance, the origination fee could be a flat rate, ranging from $25 to $500, or a percentage of your loan amount, typically ranging from 1% to 10%. The fee is usually financed as part of the loan, and depending on your state and the lender, it could be as much as 12% of your total loan amount.1
How are origination fees determined?
While the criteria vary from lender to lender, there are two common factors that help determine the size of an origination fee.
The amount of your loan
If your lender charges origination fees 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 state
Not all states allow lenders to charge origination fees. For states that do permit origination fees, some limit them to a certain percentage of the loan amount.2
Should I pay an origination fee?
If your lender charges an origination fee, you need to pay it to receive your loan. The origination fee is usually financed as part of your loan. This means that the origination fee is part of your principal balance (the original amount borrowed), and you’ll pay interest on it.
How do I avoid loan origination fees?
While origination fees can’t be waived, some lenders don’t charge them. But if you prequalify for a loan that fits your needs but 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 are clear about their costs and requirements upfront.
Make smart borrowing decisions from fees to funds
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 the funds and any restrictions on the use of loan proceeds before signing. Ask questions, do your homework and make sure you’re getting the best loan offer for your budget and needs.
Sources
- https://www.nerdwallet.com/blog/loans/what-is-an-origination-fee/
- https://legal-resources.uslegalforms.com/o/origination-fee
This article has been updated from its original posting on June 15, 2020. Kia Jackson and Kim Gallagher 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.
