The Ins and Outs of Loan Origination Fees
A loan origination fee is a one-time, upfront charge for processing a personal loan. It can also be called a sign-up fee or an upfront fee. The fee amounts to a percentage of the loan amount’s total. For example, if you have a loan for $10,000 and your origination fee is 5%, then $500 will be taken from the total amount borrowed. So you will receive less money than the actual loan. Even though you get a check for $9,500, you will still have to pay back the $10,000.
Different lenders will charge different percentages of loan origination fees which usually range from 1% to 8%. A bigger loan means a bigger loan origination fee. When you borrow $15,000, different loan origination fees can affect the costs. For example, if your origination fee is 3% you will only get $14,550 of your loan. If you need to get $15,000, you will have to borrow $15,464. If your fee is 8%, then you would have to borrow $16,305.
So why do origination fees even exist? An origination fee is the way a lender earns money off of the mortgage. It will cover administrative fees, verification or credit checks, or other processing expenses. Luckily, there are personal loans that do not have origination fees. If you choose a loan without one, you will save money on the loan’s interest, lower the cost of the loan, and you can borrow the full amount without paying more fees.
You want the best deal, so you need to find a loan where you only pay interest on the loan. To do this, contact and shop around for a lender who is right for you.