Key takeaways:
- You might come across an origination fee as a charge for your lender’s services when taking out a personal loan.
- A loan origination fee could be lower if you have a strong credit score or a co-signer when you apply.
- In some cases, a loan with an origination fee and a lower interest rate may result in a lower total cost over time, depending on the loan terms.
When you apply for a personal loan , you may come across something called an origination fee. Loan origination fee can affect how much money you receive and how much your loan ultimately costs.Some lenders charge this one-time origination fee to cover administrative costs when consumers borrow. Understanding how personal loan origination fees work can help you compare lenders and decide whether a loan offer makes sense for your situation.
Read our guide to understand what exactly a loan origination fee is and how to shop around to decide if it’s worth it.
What is a personal loan origination fee?
A personal loan origination fee is a one-time fee that some lenders charge to process and fund your loan. It typically covers costs related to evaluating your application, verifying your information, and issuing the loan.You might also hear it referred to as a processing, administrative, or underwriting fee. Origination fees are generally reflected in a loan’s percentage of the loan amount(APR), which represents the total cost of borrowing, including interest and certain fees.
How do personal loan origination fees work?
If a lender charges an origination fee, it’s often deducted from your loan proceeds before you receive the funds. This means you may receive less money than the total loan amount you agreed to repay.
For example, if you take out a $10,000 loan with a 5% origination fee, the lender may deduct $500 upfront. You would receive $9,500, but your payments would still be based on the full $10,000 loan amount.
How much is a personal loan origination fee?
Personal loan origination fees typically range from 0% to 10% of the loan amount, depending on the lender and the borrower’s credit profile. Some lenders do not charge origination fees at all, while others charge higher fees for borrowers with lower credit scores or higher perceived risk.
The exact fee you’re offered can vary based on factors such as:
- Your credit history
- Your income and debt-to-income ratio
- The loan amount and term
- The lender’s underwriting criteria
Some lenders have a flat loan origination fee. Others take a percentage range of your total loan amount calculated on certain factors.
Keep in mind, however, the higher the origination fee, the less loan money you’ll have available to you. Since an origination fee could add hundreds of dollars in extra costs, it’s subtracted from the total amount of the loan.
Example of paying an origination fee on a personal loan: Say you take out a $20,000 personal loan with a 3% origination fee. In this case, your charge would be $600. This means you’d only get $19,400 and still pay interest on the entire total of $20,000. If you needed to borrow the full $20,000, you’d have to borrow more to account for the fee.
Are origination fees Included in APR?
Origination fees are generally reflected in a loan’s annual percentage rate (APR). APR reflects the total cost of borrowing, including interest and certain fees, expressed as a yearly rate.
Because origination fees are factored into APR, two loans with the same interest rate can have different APRs if one charges a fee and the other does not. This is why comparing APR can help provide a more complete picture of a loan’s cost.
Origination fee vs. interest rate: what matters more?
When comparing personal loans, it’s helpful to look at both the origination fee and the interest rate together.
In some cases, a loan with an origination fee may still cost less overall if it offers a significantly lower interest rate. In other cases, a no-fee loan with a higher interest rate could end up costing more over time.
The best way to evaluate this is to compare:
- APR
- Total interest paid over the life of the loan
- The amount of cash you receive upfront
Is a personal loan origination fee worth paying?
Whether an origination fee is worth paying depends on your financial goals and the alternatives available to you.
An origination fee may be worth it if:
- The loan’s APR is lower than other options you qualify for
- You need fast access to funds
- The total borrowing cost is lower despite the fee
On the other hand, a loan with an origination fee may be less appealing if:
- You qualify for similar rates with a lender that charges no fee
- The fee significantly reduces the amount of money you receive
- The higher APR results in more interest paid over time
Avoiding an origination fee on your loan means more of the loan total will be accessible to you. Remember, an origination fee is subtracted from the loan total upfront. However, an origination fee isn’t a bad thing to pay in all cases.
Paying this fee could be worth it if you can get a better interest rate from the lender. On the other hand, a lender that charges more interest over time can leave you paying more over the life of the loan than compared to the origination fee.
How origination fees affect loan cost
Origination fees can affect how much cash you receive upfront. Here’s a simple illustration to show how origination fee impacts the loan you receive:
| Loan Amount | Origination Fee | Fee Amount | Funds Received |
| $10,000 | 3% | $300 | $9,700 |
| $10,000 | 6% | $600 | $9,400 |
In the two loan offers, even though both loans require repayment of $10,000 plus interest, the amount you actually receive differs.
Origination fee vs. APR: compare the true cost
An origination fee and APR measure different aspects of a personal loan’s cost, but they’re closely related. Because origination fees are generally reflected in APR, two loans with the same interest rate can have different APRs if one charges a fee and the other does not.
The example below shows how origination fees can change the overall cost of a loan, even when the loan amount and term are the same.
| Loan Feature | Loan A: No Origination Fee | Loan B: With Origination Fee |
| Loan amount | $10,000 | $10,000 |
| Interest rate | 12.00% | 10.50% |
| Origination fee | 0% ($0) | 5% ($500) |
| Funds received | $10,000 | $9,500 |
| APR | 12.00% | 11.80% |
| Monthly payment (60 months) | ~$222 | ~$215 |
| Total paid over loan term | ~$13,320 | ~$12,900 |
Illustrative example only. Actual rates, fees, and payments vary by lender and borrower.
In this case, Loan B charges an origination fee, which reduces the amount of cash received upfront. However, the lower interest rate results in a slightly lower APR and lower total repayment over time.Loan A avoids upfront fees but costs more overall due to the higher interest rate.
Depending on the terms, a loan with an origination fee may result in a lower total repayment than one without a fee.This is why comparing APR and total repayment, rather than focusing only on whether a loan has an origination fee, can help you better understand the true cost of borrowing.
How to pay a loan origination fee
There are 3 ways you can pay an origination fee on a new personal loan:
- Deduct it from your loan amount. This standard way of paying a lender an origination fee gives you a smaller loan amount when you receive your funds. However, you’re still responsible for paying back the full amount over time.
- Pay it back over time. In some cases, lenders allow you to roll the fee into the principal balance of your loan instead of deducting it from your total disbursement. This means you’d pay interest on the fee over the life of your loan as well.
- Pay the fee upfront. Some lenders may let you pay your loan origination fee out of pocket.
How a loan origination fee gets determined
The criteria for an origination fee may vary when a lender considers your loan application. However, a personal loan origination fee is usually determined by the following factors:
Credit scores and history
Personal loans are often unsecured loans that don’t require collateral. Approval is primarily based on your creditworthiness. Having a good credit score can make it easier to get approved for a personal loan and get a lower origination fee. Otherwise, with a poor credit score or a high debt-to-income ratio, you might receive loan offers with high origination fees.
Loan amount requested
The size of your loan can impact the interest rate and origination fee offered. Because this type of fee is sometimes based on a percentage of the loan total, a higher loan amount usually means a higher origination fee. Borrowing more than you need can also lead to paying more in fees than you may want.
Time span of the loan
How long you have to repay your loan influences the loan interest rate and origination fee. For instance, a shorter term may cost you fewer fees overall, but your monthly payment could be higher. Paying an origination fee on top of high monthly payments might not be worth it.
Co-signer on your loan application
Adding a co-signer might help you get the loan you need with better terms. Using another person’s income and good credit history on the application may increase your chances of a lower origination fee.
How to compare loans with an origination fee
Finding an affordable loan requires research and consideration of your financial situation. Consider how these ways can factor into your comparisons:
- Look at the APR. The APR on a loan is based on the interest rate and includes other financed charges, including origination fees. Don’t add the origination fee on top of the APR when figuring out the total cost of paying off the loan. You could be estimating that you’ll pay much higher than necessary.
- Consider the duration of your loan. An origination fee is typically paid upfront by taking from your total loan funds. However, a longer repayment term can mean you’re paying more over the life of your loan, even with similar APRs. For example, if you plan to repay the loan amount over 5 years and have a $500 origination fee, you can think of it as paying $100 per year. If your loan term is only 2 years, then you can consider the origination fee costing $250 per year.
- Shop offers from multiple lenders. It’s crucial to make sure that you’re getting the best rate available for any type of loan. Get multiple quotes from different lenders and ask if your loan will require an origination fee. Be sure to compare loans with and without origination fees by having lenders run a soft credit check.
Pro tip: Consider checking your rates through an online lending marketplace like Upstart. Our model can help you prequalify without a hard credit check. We also look beyond your credit score to help you find a personal loan that works best with your finances. Prequalification does not guarantee approval. Final terms depend on full application and verification.
Can you avoid or reddue an origination fee?
In many cases, origination fees are not negotiable, but there are still ways to limit their impact:
- Compare offers from multiple lenders, including those with no origination fees
- Focus on APR and total loan cost, not just the fee itself
- Borrow only what you need to minimize the dollar amount of the fee
Though you may not be able to avoid a loan origination fee, you could lower it by improving your credit before applying. Having good to excellent credit beforehand could help you receive the best loan terms overall.
Remember, if a lender doesn’t charge this extra fee, they might have other additional costs, higher interest rates, or different eligibility requirements. Accepting a trade-off by opting for a higher interest rate may be worth it if the origination fee is lower or eliminated and the numbers line up with your budget.
Choosing the loan right for you
Choosing a personal loan that works with your financial goals is an important decision. A personal loan that comes with an origination fee might not be ideal, but it could work best for you in certain situations.
Before deciding on a personal loan, gather numerous offers and compare the APR, repayment terms, and any restrictions on loan proceeds. Remember, while loan origination fees add to costs, it may be worth paying if the APR is the lowest among other options. Once you see the numbers you have available to you, you can make sure you’re getting the best offer for your specific needs. If you decide you’re ready, getting a personal loan through Upstart could help start your financial journey.
FAQs
Do all personal loans have origination fees?
No. Some lenders charge origination fees, while others do not.
Can origination fees be rolled into the loan?
In many cases, origination fees are deducted from the loan proceeds rather than paid upfront.
Do origination fees affect your credit score?
The fee itself does not affect your credit score, but applying for a loan may involve a credit inquiry.
Won't affect your credit score¹