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What Is a Personal Loan Origination Fee?

Origination fees can increase the cost of borrowing, but not all loans have them.

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By Devon Delfino
Devon Delfino

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Written by

Devon Delfino

Freelance writer, Credible

Devon Delfino is a personal finance writer with over eight years of experience. Her work has been published by U.S. News & World Report, CNN, and The Motley Fool.

Edited by Jared Hughes
Jared Hughes

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Written by

Jared Hughes

Writer and editor

Jared Hughes has spent more than eight years covering personal finance, with bylines at the New York Post and NewsBreak.

Reviewed by Meredith Mangan
Meredith Mangan

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Written by

Meredith Mangan

Senior editor

Meredith Mangan is a senior editor at Credible. She has more than 18 years of experience in finance and is an expert on personal loans.

Updated April 19, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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Borrowing money can be expensive. Beyond the interest rate, there can be a host of fees, including origination fees. An origination fee is an upfront fee that some lenders charge when you get a loan. The better your credit, the easier it may be for you to qualify for loans without origination fees. But if you have bad credit or fair credit, you're more likely to have to pay one.

Here’s everything you need to know about these fees, including how to lower or avoid them.

What is an origination fee?

An origination fee is an upfront fee that you may pay on different types of loans, including personal loans. It’s often calculated as a percentage of the loan amount — typically this could be anywhere from 1% to 10%. For example, a 5% origination fee on a $15,000 personal loan would amount to $750.

Why is there an origination fee?

“Personal loan lenders can charge origination fees to cover administrative costs associated with processing loan applications, funding the loans, and managing and handling customer service over the life of the loan,” said Kyle Enright, president of lending at Achieve.

Because of the reasons behind these fees, you may also see them referred to as underwriting or administrative fees. Just know that any upfront fee charged to get a loan can increase your overall cost and decrease the loan amount you receive.

Factors affecting origination fees

Generally speaking, the riskier the lender thinks you are as a borrower, the higher the origination fee, though underwriting criteria differ between lenders. Here’s a quick breakdown of some of these factors and how they may impact your fee:

  • Credit score: The higher your score, the lower your origination fee is likely to be.
  • Income: Those who earn more may be charged a lower or no origination fee.
  • Loan amount: Smaller loans are considered a safer bet for lenders, often resulting in a smaller fee.
  • Loan term: Longer terms are deemed riskier, so they’re typically associated with a higher origination fee.

However, some lenders do charge a flat origination fee for all applicants.

How origination fees impact you

Origination fees are deducted from the requested loan amount. For example, say you take out a $10,000 personal loan with a 6% origination fee, a five-year term, and an 8% interest rate. The 6% origination fee deducts $600 from your loan amount, leaving you with $9,400.

But those aren’t the only things you need to worry about here.

“Most lenders will deduct the amount of the origination fee from the loan proceeds. So, if you’re looking for a loan of a specific amount, you may need to request a higher loan amount,” said Enright. “Consumers should ask about the policy for handling origination fees of each lender they’re talking to.”

Because these fees can impact how much money you actually receive, they may also impact your decision to borrow in the first place. However, these fees aren’t required with all personal loans, so you may wish to shop around to find one that doesn’t charge them.

You should note that lenders that don’t charge this fee may charge higher interest rates, which could end up costing more long-term. So, you’ll need to look closely at the APR (which is a reflection of your total loan costs, including the interest rate and any origination fee) before going with a lender.

Additional personal loan factors to consider

The origination fee certainly isn’t the only factor you should consider when taking out a loan.

  • Loan types: Personal loans are very flexible when it comes to what you can use them for, but if you have a specific need, another type of loan may be a better option. For example, homeowners looking to finance improvements to their house may also consider a home equity line of credit (HELOC). Additionally, most personal loans are unsecured, which means collateral is not required.
  • APR: This is the most impactful factor when it comes to how much you’ll pay to borrow. It’s best to seek out the lowest rates available, as the lower your rate, the less you’ll pay in interest. Personal loan APRs generally range from 4.60% to 35.99%.
  • Repayment terms: Most lenders typically offer 1 to 7 years to repay a personal loan. Picking a shorter term typically means you’ll pay more per month, but less overall, and vice versa. So, you’ll want to get the shortest term that you can afford.
  • Loan amounts: Generally, personal loans range from $600 to $100,000 or more, depending on the lender. Some lenders will offer smaller loan amounts than others, so make sure they can cover your loan needs — including any origination fee. Prequalify with lenders first to get an idea of how much of a personal loan you can get.
  • Time to fund: If you need quick cash, there are lenders that can cater to those needs. Otherwise, you can broaden your search to include more traditional lenders. Most lenders usually fund your loan in one week, but there are some who can fund as soon as the same or next business day after approval.
  • Minimum credit score: Your credit score will be an important qualification factor. If you don’t have perfect credit, you’ll want to look closely at the lender’s minimum credit score requirement. Good to excellent credit is usually required to qualify for a personal loan, and most lenders prefer a FICO score of 670 or higher. But some lenders offer personal loans for bad credit.
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Meet the expert:
Devon Delfino
Devon Delfino

LinkedIn

Devon Delfino is a personal finance writer with over eight years of experience. Her work has been published by U.S. News & World Report, CNN, and The Motley Fool.