How Do Loan Origination Fees Work?

The last thing you want to deal with when you’re taking out a new loan is a surprise. For some borrowers, the loan origination fee is just that. 

Origination fees—which are the up-front loan fees charged by some lenders—can range anywhere from $0 to 12% of the loan amount.  

So if you’re not expecting to pay them, you could be in for a financial blow. It’s a big enough problem that, according to the Consumer Financial Protection Bureau, unexpected fees were the most common complaint people made about personal loans in 2023.  

What are loan origination fees? 

A loan origination fee is a one-time fee a lender charges for processing your application and setting up the loan. Some personal loans don’t come with it, but for those that do, the lender will likely deduct the money from your total loan amount to cover the fee.  

In other words, if you don’t factor in this fee during your loan application, you could end up with a smaller loan than you need. 

How much will you have to pay? The origination fee on each loan can be as high as 12% of the loan amount. However, the fee for each loan depends on a few factors, some of which are within your control. They include: 

 

• • Lenders: Lenders generally have a set percentage range charge for each loan. 

• • Loan amount: Larger loans are considered riskier and typically come with more fees. 

• • Credit scores: A stronger credit history usually means lower fees. The better your credit scores, the more likely you are to be approved for multiple loans with no origination charges. 

• • Loan terms: The longer your loan repayment, the more risk there is that you’ll miss payments, and thus, the higher your fees could be. 

• • Income: If you have a high, stable income, lenders will view you as less of a risk and may offer you a low fee or no fee at all.  

How loan origination fees work 

Some lenders don’t charge origination fees. As the borrower, it’s your responsibility to search for information on rates and fees before you agree to take on a loan.  

For personal loans, you can often find general information about loan origination fees if you search the lender’s website. But fees can vary for each loan, so if you apply for a loan, you’ll also need to read the documents provided along with the loan offer. 

If you can’t find the fee information and the lender won’t show you where it is, don’t accept the loan. 

How much should you expect to pay? Depending on the state you live in, it could be a flat fee of up to $500, but it’s more likely to be a percentage of your loan amount. And you can usually pay the fee in one of two ways: 

 

• • Up-front: It’s deducted from your total loan amount before you receive the funds. 

• • Add it to your loan: Your total loan balance includes the fee.

Should you consider a loan with an origination fee? 

It’s reasonable to consider a loan with an origination fee as long as it’s more affordable than your alternatives.  

For example, one loan with an origination fee might be cheaper than another loan with a higher APR. If you’re planning to consolidate high-interest credit card debt, a loan with an origination fee could also be cheaper than paying off the credit cards month-by-month.   

Here’s an example of how several $10,000 loans, with and without up-front origination fees, might compare if paid back over a 5-year term: 

	Origination fee	APR	Monthly Payment	Total cost to borrow
Loan 1	$0	20%	$265	$5,896
Loan 2	5% ($500)	15%	$238	$4,774
Loan 3	8% ($800)	10%	$212	$3,548

Another reason to consider taking on a loan with an origination fee is if you need the funds for an emergency, assuming you don’t have any other (more affordable) ways to get the money. 

Just make sure you calculate the total cost to borrow—including all the fees and interest charges—before accepting a loan. As you can see in the example above, the loan with the lowest origination fee or the lowest monthly payment is not necessarily the cheapest. 

Compare the fees before borrowing 

Don’t let it catch you by surprise. When you’re shopping around for loans, make sure these fees are one of the details you compare across lenders.  

Then, once you’ve found a few lenders you like, consider applying for multiple loans and choosing the one that has the best, most affordable deal, with all the rates and fees included. 

Frequently asked questions about loan origination fees 

Where can I find the loan origination fee for a personal loan? 

You can find it for a personal loan in the loan agreement. If you want to get an idea of what a lender charges before you apply for one of their loans, you might be able to find their fee range on their website. 

Do all personal loans have origination fees? 

Some personal loans do not have it. The higher your credit scores and income, the more likely you are to qualify for a loan with no origination fee. 

What do loan origination fees pay for? 

On a personal loan, the loan origination fees typically cover several administrative costs related to borrowing, including the lender’s cost to process your loan application and to send you the funds. 

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