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What Is An Origination Fee And Can I Avoid Paying It?

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When you apply for a loan, you will be charged a variety of fees to cover the lender’s costs. We tend to think of interest rates as the lender’s repayment, but interest rates actually repay the lender for the use of its money.

Lenders also want to recover the costs incurred for processing your application, communicating with you and otherwise facilitating the loan process. For this, they charge an origination fee.

What Is An Origination Fee?

Lenders charge loan applicants an origination fee to recover their costs for processing an application for a personal loan or mortgage. The origination fee covers the lender’s underwriting costs, including running a credit report, checking your credit scores, processing your financial records and communicating with you about your application’s progress. Other names for origination fees include underwriting, administrative and processing fees.

Who Pays The Origination Fee On A Personal Loan?

The borrower always pays the origination fee on a personal loan. The origination fee is normally financed, and therefore rolled into the borrowing balance, but the borrower will still pay it in full with interest.

Are Personal Loan Origination Fees Regulated By The Government?

In many respects, yes. The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) require compliance with the Truth in Lending Act. This regulatory control came after the 2008 Financial Crisis. The regulations do not tell lenders how much they may charge for an origination fee, but they require lenders to disclose all fees that the borrower must pay, in writing, and provide the APR, so consumers can have transparency and compare loan offerings apples to apples.

How Much Does The Origination Fee Cost?

Typically, the origination fee for a personal loan will run between 1% – 10%. A typical mortgage origination fee runs between 0.05% – 0.1% of the much larger loan amounts borrowed to finance home purchases. At Rocket Loans®, origination fees run from between 1% – 6% for personal loans. We publish all personal loan fees upfront.

Can I Avoid Paying The Origination Fee Upfront?

Sometimes. Many lenders add the origination fee to the balance, in which case borrowers must pay interest on the fees as well as the loan amount. This will cost borrowers more in the long run.

Can My Origination Fee Be Waived?

Hey, it never hurts to ask – but in most cases, no.

The lender charges the origination fee to borrowers to recoup the advance it gave you toward its expenses. With personal loans being a form of unsecured debt, origination fees not only help pay for servicing the loan, but also cushion the blow in circumstances where borrowers default on their personal loan.

For borrowers seeking a large loan who have excellent credit scores and steady high income, some lenders may agree to waive the origination fee, if asked. In some cases, lenders may also waive fees if the borrower has a business that generates enough revenue for the lender to waive the fee as a courtesy.

Are No-Fee Personal Loans Available?

The lending marketplace is vast, and borrowers can generally find a wide variety of no-fee/low-fee loans advertised.

But, in most cases, borrowers will pay for a lender’s costs one way or another, either out of the loan proceeds or with higher interest charges. It’s important for borrowers to shop around for the best deals and avoid any hidden lending charges. In other words, if it seems too good to be true, it probably is.

When Do I Have To Pay The Origination Fee?

To be sure when the payment for a fee is due, you’ll have to read the fine print of your loan agreement. Here at Rocket Loans®, the origination fee is taken directly out of the approved loan borrowing amount. 

How Can I Know If I’m Getting The Best Loan?

It can be hard to understand how much you will actually pay to a lender over the course of your loan. For this reason, lenders who market loans to consumers must disclose the Annual Percentage Rate, or APR, of their loans. The APR calculates the true cost of borrowing by including both fees and interest. Seeking the lowest APR is one way of ensuring that you’re charged fairly for the loan.

Final Thoughts

You’ll get the best loan terms for your personal loan if you do your research, check out multiple lenders and ask plenty of questions. Ready to get started, without the process impacting your credit score? Apply for a personal loan right now!

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