Origination Fees on Personal Loans: What To Know Before You Pay
Imagine getting a personal loan, only to find out that your loan is smaller than expected. The culprit? An origination fee — it’s an upfront charge that lenders deduct from your loan. Origination fees typically range from 1% to 10% of your loan amount, though not all lenders charge them. Learn what these fees are, how they work and how to avoid them.
- Some lenders keep part of your personal loan as an origination fee.
- You could expect an origination fee between 1 and 10%, sometimes more.
- You’re more likely to pay an origination fee if you have bad credit.
- A fee-free loan isn’t automatically cheaper — it’ll also depend on your interest rate.
What is an origination fee, and how do they work?
Personal loan origination fees (also called administrative fees) are usually a percentage of your loan amount. A few lenders charge these fees as a flat rate, but not often.
Technically, an origination fee is an upfront fee — but that doesn’t mean you have to pay out of pocket. Instead, the lender usually deducts this fee while processing your loan.
Use the table below to see how an origination fee can impact your personal loan. Spoiler alert: Loan A is the best deal. Please note that each loan has a 60-month term and that figures were rounded to the nearest whole number.
| Loan A | Loan B | Loan C | |
|---|---|---|---|
| Requested loan amount | $10,000 | $10,000 | $10,000 |
| Origination fee | None | 4% ($400) | None |
| Interest rate | 12% | 12% | 15% |
| Loan amount received | $10,000 | $9,600 | $10,000 |
| Monthly payment | $222 | $222 | $238 |
| Total cost of loan, including interest and fees | $13,347 | $13,347 | $14,274 |
Loan A and Loan B are nearly identical, but you’ll only get $9,600 with Loan B. Loan B has a 4% origination fee, while Loan A has none.
Loan C also has no fee, so you might assume that it’s better than Loan B — that’s not the case. Loan C has a higher interest rate. You will get your full $10,000, but you’ll pay $927 more in overall interest.
Streamlining credit card debt with a debt consolidation loan can help you pay less money in interest if you qualify for a lower rate. Just know that an origination fee will offset some of your overall savings.
For instance, let’s say you’ve used a debt consolidation calculator and you can save $5,000 in interest by consolidating $20,000 of credit card debt. But your consolidation loan has a 5% origination fee.
This means you’re actually only saving $4,000 when you subtract your 5% ($1,000) origination fee.
Why do lenders charge origination fees?
Some lenders (like LightStream) don’t charge origination fees. With others (such as Upstart), your origination fee could be between 0% and 12%. Here are reasons why some lenders charge these fees.
- To cover overhead: Some lenders charge origination fees to pay for underwriting and loan application processing.
- Because you have bad credit: Other lenders only charge an origination fee if you have bad credit. Origination fees are usually presented as a range (typically up to 10%, for example). The lower your credit score, the higher your origination fee.
How to avoid origination fees
It might sound crazy, but don’t automatically disqualify a lender if it charges an origination fee. If it offers you a lower interest rate, that one-time fee could be worth it. Still, if you want to avoid fees at all costs, here’s how you can do it.
Shop with more than one lender
The best way to find no-fee personal loans is by shopping around. A LendingTree study found that you could see an average savings of $2,731 by getting at least six loan offers. Check rates without impacting your credit. It’s free, simple and secure.
Improve your credit score
Lenders are more likely to charge origination fees if you have bad credit. Work on improving your credit score if it’s below 670 — ideally, it should be 740 or higher. Good credit will help you access more affordable rates, and the lender might waive its origination fee as an incentive to extend a personal loan to you.
Get your credit report card for free with LendingTree Spring. We’ll show you how you’re doing on each of the factors that affect your credit, like payment history and credit utilization. Plus, we’ll give you personalized recommendations on how to improve your score.
Check your bank or credit union
Online loans can be quick, but they tend to come with more fees than banks and credit unions charge. See if your bank offers personal loans and, if so, what kind of fees it charges. You might even qualify for a rate discount for being an account holder.
Other personal loan fees
Origination fees make borrowing more expensive. A higher fee might mean a bigger loan, leading to more debt and interest. Other types of personal loan fees include:
- Late payment fees: Unless a lender advertises itself as fee-free, expect a fee if you miss a due date. Some lenders have a 10- to 15-day grace period before a late fee applies.
- Returned payment fees: Most lenders tack on charges if your autopay is declined or your check bounces.
- Application fees: Application fees aren’t common on personal loans — in fact, these fees could be a sign of predatory lending. Skip lenders that charge you to apply.
- Prepayment penalties: A prepayment penalty is a fee if you pay off your loan early. Just like application fees, legitimate personal loan lenders don’t usually charge prepayment penalties.
Your annual percentage rate (APR) measures the total cost of your loan, including interest and fees.
Your loan term is the length of time you have to pay off what you’ve borrowed. A longer loan term usually means lower monthly payments, but also more overall interest.
A lender’s funding timeline is how long it takes to approve your application and send your money.
Make sure to subtract your origination fee from your requested loan amount. This will give you a better idea of how much money to expect from the lender.
Read lender reviews written by real people who’ve used the company. Unless you refinance your loan or pay it off early, you may be with your lender for several years. It’s important you choose a company with good customer service.
Frequently asked questions
For a personal loan, a 2% origination fee isn’t especially high — but it depends on your credit score. If you have bad credit, you could see origination fees closer to 10% (or even higher). If you have excellent credit, you might qualify for a no-fee personal loan.
In the end, the best way to see if a 2% origination fee is high is by shopping around with a few different lenders.
No, you usually don’t get your origination fee back. The lender might refund some of your origination fee if you pay off your loan early, but it’ll depend on the lender’s policy. Your origination fee may also need to be above a certain amount to qualify, typically 5%.
It’s worth a shot, especially if you have very good credit (a score of 740 or higher). Some personal loan lenders are willing to negotiate and others aren’t.
For instance, SoFi might offer you a lower interest rate if you agree to an origination fee. This might sound a little backwards if you were hoping to get your fee waived, but the lower rate might actually save you more money in the long run.
Get personal loan offers from up to 5 lenders in minutes