What Is a Personal Loan Origination Fee?
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Definition: Personal loan origination fee
A personal loan origination fee is an upfront expense some lenders charge to cover administrative costs to process the loan, typically around 1% to 10% of the loan amount.
This fee might be called an underwriting, administrative or processing fee. Origination fees are also common on mortgages and federal student loans.
Compare origination fees between lenders and determine how they add to the overall cost of a personal loan.
Here’s more information on personal loan origination fees, what they cost and when it makes sense to pay the fee.
» MORE: Compare personal loans
How much is a personal loan origination fee?
Personal loan origination fees can be up to 12%. Amounts can vary by lender and state.
Factors that determine the fee amount include your credit score, the loan amount, the repayment term and other information on your application, such as your income and whether you will have a co-signer.
The origination fee is accounted for in the loan’s annual percentage rate, or APR, which represents the true annual cost of borrowing when factoring in the interest rate and upfront fees.
Some lenders add the origination fee to the loan balance, but it's more common for a lender to deduct it from the loan. Because an origination fee can reduce your loan balance, be sure the borrowed amount is still enough to cover your expense after the fee is applied.
Personal loan origination fee example
Let’s say you need $20,000 to consolidate debt, and the loan you want has a 5% origination fee. If your lender deducts the origination fee from your loan proceeds, you'd have to request $21,053. Once the 5% fee is applied — in this case, $1,053 — you will have $20,000 to use for consolidation.
You would make payments on the $21,053 balance, not the $20,000 you'd receive.
Use a personal loan calculator to see the impact an origination fee would have on your loan.
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Should you pay a personal loan origination fee?
An origination fee may not be a reason to decline a loan offer. In some cases, a loan with an origination fee may have a lower APR — and therefore cost less overall — than one without the fee.
Many lenders let you pre-qualify to check your potential loan amount, rate and repayment term, without affecting your credit score. Pre-qualify with multiple lenders to find the least expensive loan offer — even if that offer includes an origination fee.
Online lenders are more likely to charge the fee than banks and credit unions.
Though mortgage origination fees may be negotiable, this likely isn’t the case with personal loans.
Other personal loan fees to consider
Late fee: If you don’t make your loan payment on time, your lender can charge a late fee, though many offer a grace period (typically around 15 days) before charging it. Consider setting up automatic payments or due date reminders so you don’t forget to make your payment on time. A loan payment that’s more than 30 days late can negatively affect your credit score.
Non-sufficient funds fee: A lender may charge a non-sufficient funds (NSF) fee if your bank account balance is too low when the lender debits it. This is also known as a returned check fee. If you miss the due date because the lender couldn’t withdraw funds, you may have to pay a late fee in addition to the NSF fee.
Prepayment fee: Prepayment fees aren’t as common on personal loans as they are on other types of loans like mortgages, but it’s a good idea to read through your loan agreement to ensure you won’t be charged for paying off your loan early.
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