Origination Fee

Origination fee summary:

A loan origination fee, sometimes called a lender fee, is a fee for making the loan.
Not all loans carry a loan origination fee. Sometimes loans with no origination fee come with a higher interest rate instead.
Knowing the origination fee and other loan details could help you calculate the total cost of a loan.

Origination fee definition and meaning

A loan origination fee is a one-time charge some lenders add to a loan to cover their cost of processing and preparing your loan application and origination. It pays the lender for administrative tasks, like processing your application, verifying your credit standing and the details of your financial situation, and funding the loan. Typically, the origination fee is a percentage of the total amount borrowed. It could also be a flat fee that’s the same for all borrowers.

Origination fees are often associated with mortgages, personal loans, student loans, and business loans.

Key concept: A loan origination fee covers the cost of processing and administering your loan.

More about origination fees

Most origination fees range from 1% to 10% of the loan amount, but you might find origination fees that are higher or lower. The origination fee is in addition to the interest you pay on the loan.

Although you only pay an origination fee once, it could be paid in a couple of ways. Often, the fee is deducted from the loan proceeds. For example, if you’re approved to borrow $10,000 and your origination fee is 5% ($500), the amount you get will be $9,500. You’re responsible for paying back the entire $10,000.

Alternatively, you could pay the origination fee out of pocket when you get the loan.

Origination fee: key characteristics

One-time cost, usually found in loan agreement
Often calculated as a percentage of the amount borrowed
Covers the lender's expenses for reviewing and processing your application and setting up your loan
Often deducted from the loan before you get the money
Affects the total cost of the loan

How the origination fee affects loan cost

The origination fee is one factor in the annual percentage rate (APR). The APR tells you the cost of your loan for one year, including interest and fees. If your loan has no fees, the APR is the same as the interest rate. If your loan has fees, the APR is higher than the interest rate.

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Origination Fee FAQs

When a lender advertises "no hidden fees," does that mean no origination fee?

Not necessarily. You'll need to check with a lender to learn which fees it's referring to. For example, it could mean that there are no prepayment penalties or credit check fees.

Should I find another lender if the one I'm considering charges an origination fee?

Maybe, but maybe not. It’s possible for a loan with an origination fee to cost less than a similar loan that doesn’t have an origination fee. This could happen if a lender charges an origination fee but offers you a lower interest rate and better terms than other lenders.

What credit score do I need to get a loan?

The credit score required for a personal loan tends to be 620 or higher. For mortgages, there are programs for borrowers whose credit score is at least 500. But most kinds of mortgage loans require a 580 or a 620. To borrow cash with a home equity loan, you might need a score of 680 or 700. Every lender decides what their cutoff will be for each loan that they offer.