Learn how lenders apply these fees, how much they cost and where to find a loan without one.
Sometimes it’s not enough to just compare APRs on personal loans. You might also run into lenders that charge fees, with origination fees being the most common. Depending on your lender, these fees will vary in costs and how they’re applied to your loan. Knowing what to expect beforehand can help you compare providers and score a more competitive loan.
What’s an origination fee?
An origination fee is a fee your lender charges to cover the cost of processing your application and the agreement. Typically, it’s a percentage of your loan amount — usually between 1% and 6%. The origination fee applies after you’ve been approved for the loan and signed your loan documents.
Lenders typically consider the following factors when coming up with your origination fee:
- Creditworthiness. Generally, you’ll need to have good or excellent credit, exceed your lender’s income requirements and have a low debt-to-income ratio to qualify for the lowest origination fee.
- Loan amount. Lenders sometimes charge lower origination fees on larger loan amounts.
- Loan term. The longer your loan term, the more you might end up paying for your origination fee.
How do origination fees work on personal loans?
It’s rare for a lender to charge an origination fee upfront. Instead, they typically roll it into your loan. There are two ways a lender might do this:
- Deduct it from your funds. This is the most common way lenders charge an origination fee. Here, your lender subtracts the origination fee from your funds before you receive them. You won’t get the same amount you were approved for, but you also won’t end up paying interest on a higher balance.
- Add it to your loan balance. Though less common, you might come across a lender that adds your origination fee to the loan principal. You’ll receive the same amount you were approved for, but you’ll end up paying interest on a larger loan amount — which can increase the overall cost of your loan.
Let’s take a look at two examples.
Say you take out a loan of $10,000 with a 4% origination fee.
If your lender adds it to your loan balance, you’ll have a loan principle of $10,400 — even though you’ll only receive $10,000. Pay that loan off at a 10% interest rate over five years and you’d pay a total of $2,858.16 in interest, not including the $400 origination fee. Overall, your loan will cost you $3,258.16.
But if your lender subtracts your origination fee from your funds, you’ll only receive $9,600 but pay off a loan balance of $10,000. Here, you’d pay a total of $2,638.30 in interest. That’s about a $620 difference.
What origination fee can I expect?
While your credit score and loan amount factor into your origination fee, different lenders offer different ranges. These are the ranges of origination fees you can expect from some top lenders:
| Provider | Origination fee | |
|---|---|---|
| LendingClub | 1%–6% | Learn more |
| Prosper | 2.41%–5% | Learn more |
| Best Egg | 0.99%–5.99% | Learn more |
| Upstart | 0%–8% | Learn more |
| Upgrade | 1%–6% | Learn more |
| FreedomPlus | 0%–5% | Learn more |
| Avant | 4.75% | Learn more |
| Payoff | 0%–5% | Learn more |
Where can I get a personal loan with no origination fee?
Looking for a lender that doesn’t charge an origination fee? Consider these options. You’ll typically need good to excellent credit to qualify for these competitive loans.
| Lender | Min Loan Amount | Max. Loan Amount | APR Range | |
|---|---|---|---|---|
| SoFi Personal Loan Fixed Rate (with Autopay) | $5,000 | $100,000 | 7.24% to 15.24% | Go to site More |
| LightStream Personal Loans | $5,000 | $100,000 | Competitive | Go to site More |
| Marcus by Goldman Sachs Personal Loans | $3,500 | $40,000 | 6.99% to 24.99% | Go to site More |
| Discover Personal Loans | $2,500 | $35,000 | 6.99%–24.99% | More |
| Earnest Personal Loans | $5,000 | $75,000 | 6.99%–14.24% | More |
| Citizens Bank Personal Loans | $5,000 | $50,000 | 5.99%–19.5% | More |
Compare personal loans that charge absolutely no fees
Additional costs to consider
Origination fees might have a sizable impact on how much your loan costs. But that’s not the only cost you need to consider. The easiest way to compare the total cost of a loan is to compare the annual percentage rate (APR). This is an expression of the interest and fees you’ll pay over one year.
Since APRs are by the year, make sure you’re comparing loans with similar terms. A lower APR on a seven-year loan could cost you more than a higher rate on a five-year loan.
But even with the most competitive APRs, you still might want to see how it breaks down.
Interest
Interest is a percentage of the loan amount that your lender charges periodically. The interest rate typically refers to the annual interest rate, or how much you would pay in interest over one year. Some short-term lenders charge monthly interest rates, however, which applies each month you take to pay back your loan.
Other common fees
- Application fees. While not as common as origination fees, some lenders charge a fee for processing your application. Typically, application fees don’t top $100.
- Late fees. Many lenders charge a fee of around $15 or 5% of the payment due if it’s more than 10 or 15 days late.
- Nonsufficient funds (NSF) fees. If a check bounces or payment otherwise doesn’t go through, most lenders charge an NSF fee. This is typically around $20 to $40.
- Prepayment penalties. You might come across a lender that charges a penalty if you want to pay your loan off early. Prepayment penalties are typically equivalent to what you would have paid in interest if you paid off the loan according to your term.
How to find a competitive loan beyond the fees
Your loan’s total cost isn’t the only thing you should consider when comparing lenders. You might also want to look into these factors to find a loan that’s right for you:
Eligibility. Before you apply for a loan, make sure you’re able to qualify. Many lenders have minimum credit score, income and debt-to-income ratio requirements. Some also don’t offer loans in all states.
Monthly payments. How much you owe each month might be even more important than the loan’s total cost since it’ll affect your monthly budget. Generally, the longer the loan term, the lower your monthly payments — but the more you’ll pay in interest overall. You can use our monthly payment calculator to figure out how much you’d owe on a loan based on the loan amount, APR and term.
Loan amounts. A loan with no origination fee won’t do you much good if the lender doesn’t offer the amount that you need to borrow. Personal loans typically range from $2,000 to $50,000, but not every provider offers as little as $2,000 or as much as $50,000. You can use our personal loan borrowing power calculator to find out how much you could afford to borrow.
Turnaround time. If you need money fast, speed is going to be a top priority. Many online lenders offer next-day financing, though you might not find the most competitive rates.
Bottom line
Understanding how origination fees work can save you from the nasty surprise of getting less money than you thought you would or an inflated fee. But it’s possible to find a lender that doesn’t charge origination fees or any fees at all. Visit our guide to personal loans to learn more about your options.
Frequently asked questions
Image source: Shutterstock
