For many people, personal loans can be the difference between affording something they need — like major home repairs — and having to forego the purchase. But personal loans aren’t without fees. Lenders always charge interest on loans, and in many cases, something called an origination fee.
But what is an origination fee on a personal loan, and how does it work? We’ll dive in below.
What Are Personal Loan Origination Fees?
Personal loan origination fees are an upfront, one-time charge by the lender that covers the costs of processing the loan, including the application, underwriting, and funding.
Typically, lenders charge origination fees as a percentage of the total loan amount. It’s usually 1% to 6%, but origination fees may go as high as 8% or even 10% of the loan amount. In some instances, a lender may charge a flat fee instead.
Not every personal loan has an origination fee, and lenders may differ in how they require consumers to pay it, if it’s included.
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How Do Personal Loan Origination Fees Work?
If a lender charges an origination fee for a personal installment loan, it’s usually a percentage of the loan amount, somewhere between 1% on the low end and 10% on the high end. For example, if you take out a personal loan for $15,000 and there’s a 5% origination fee, you’ll pay $750 in fees.
Lenders typically subtract this fee from the total loan amount. In our example, that means they’d offer you a loan for $15,000, subtract $750 from the amount, and give you $14,250. But you’d still have to repay $15,000, plus interest. If you truly need the full $15,000, it’s a good idea to request more than $15K to ensure that you have enough funds after the origination fee is deducted.
In this case, the personal loan origination fee would be reflected in the APR calculation. That’s why experts often suggest comparing loans by their APRs. The APR, which represents the annual cost of a loan (not just the interest rate) will give you a true picture of what you’ll pay over the life of the loan.
Learn more about interest vs. APRs before comparing loans.
Note: While subtracting the fee from your loan amount is common, some lenders may require an out-of-pocket payment or add it to your loan total. Asking a lender how they charge the origination fee is a good idea when shopping for loans.
How Much Are Personal Loan Origination Fees Usually?
Personal loan origination fees typically vary between 1% and 10% of the total loan amount. Depending on how much you’re borrowing, this fee can get extraordinarily high.
For example, if you borrow $100,000 with an 8% origination fee, that’s an extra $8K you’re paying on top of the loan amount and interest.
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How Are Origination Fees Calculated?
Lenders may advertise a set origination fee or a percentage range. If it’s the latter, how exactly do they determine the percentage you’ll pay?
Unsurprisingly, lenders primarily consider your credit score and debt-to-income (DTI) ratio. The stronger your credit score and the lower your DTI ratio, the lower origination fees you might be offered. Lenders that don’t charge origination fees at all may have strict requirements that only borrowers with good or excellent credit can meet.
Lenders may also consider the length and size of the loan. Having a cosigner with good credit can help reduce your fees. In addition, lenders may ask your reason for borrowing or use other information from your application when setting your fees.
How to Find a Personal Loan Without an Origination Fee
Not every lender charges origination fees. At SoFi, our personal loans have no origination fees and no prepayment penalties.
To find lenders that don’t charge origination fees, do a simple search online. Many personal finance sites rank the best personal loans without origination fees. Just remember to compare personal loan APRs, as some personal loans without origination fees may cost more in the long run because of higher interest rates.
Also keep in mind: Lenders that don’t charge origination fees may have stricter personal loan credit score requirements to qualify.
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When Is an Origination Fee a Dealbreaker?
If you can qualify for a personal loan without an origination fee, that’s often the more affordable path. However, it’s wise to compare the loan APRs, which represent your total annual costs. A loan with no origination fee but a higher interest rate may wind up costing you more in the long run; comparing APRs can help you figure it out.
Similarly, if you qualify for a handful of personal loans with varying fees, you may not necessarily want to go with the lowest fee. Compare APRs to discover the true cost of each loan.
At SoFi, we offer competitive personal loan interest rates and no origination fees to keep your costs down. We encourage everyone to do their due diligence and research multiple loans, but we’re proud of what we offer: same-day funding, flexible loan terms and amounts, and unemployment protection. You can even check your personal loan rate in as little as 60 seconds.
So when is a personal loan origination fee a dealbreaker? If the fee makes your total cost of borrowing higher than another offer, you should consider the better loan offer.
All lenders are required to disclose their fees as part of the Truth in Lending Act. If a lender advertises no origination fees, it’s a good idea to check the fine print to see if they’ve disguised the fee with a look-alike fee, like an “administrative” or “application” fee. If a lender does this and it gives you bad vibes, go with your gut — you should always feel good about the lender you choose.
Explore SoFi Personal Loan Rates
Looking for a personal loan with no origination fees? Try a personal loan from SoFi. We don’t charge origination fees, you can get same-day funding, and our loan terms and amounts are flexible (two to seven years and $5K to $100K in loans). Check your rate online in as little as 60 seconds!
Get a personal loan without the high fees from SoFi.
How much are personal loan origination fees typically?
Personal loan origination fees typically range between 1% and 6% of the loan amount. But depending on the lender, your credit score, and other factors, you may pay as much as 8% or 10% in personal loan origination fees.
Do private loans always have origination fees?
Many private lenders charge origination fees, but that is not always the case. Before taking out any loan with a private lender, it’s a good idea to compare origination fees and APRs.
Can origination fees be negotiated?
You can often negotiate origination fees for certain types of loans, such as mortgages. Personal loan origination fees may be negotiable, but this is less common. However, with a high enough credit score, you may be able to qualify for a personal loan without an origination fee — or at least a lower one.
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