Personal loan origination fees: Are they worth the cost?

A personal loan origination fee is paid up front when you take out a loan. It may be worth paying an origination fee if the loan has a long repayment period or a lower interest rate. But sometimes originations fees are not worth the cost. (iStock)

Personal loans are useful for almost any reason. From consolidating debt and paying off high-interest credit cards, to making a downpayment on a new car. Most personal loans are unsecured, meaning you need no collateral to qualify, and they come with competitive fixed rates, terms, and fixed monthly payments. 

Personal loans also sometimes come with origination fees that are added on to the amount you have to repay. Here's everything you need to know about personal loans and why some lenders charge origination fees.

What is a personal loan origination fee?

Paying back the loan amount on your personal loan might not be the only costs you’re responsible for. Many lenders charge an origination fee, also called an underwriting, processing, or administrative fee. 

Much like a mortgage origination fee, the origination fee on a personal loan is usually included in the loan’s annual percentage rate (APR) and charged by lenders when you take out the loan. 

Origination fees are calculated as a percentage of the loan amount, so the more you borrow, the higher the fee. For example, if you take out a $5,000 personal loan with an origination fee of 2%, you might pay $100. 

If you're considering taking out a personal loan, head to Credible. Credible can help you find loan rates starting at 4.99% APR and loan amounts up to $100,000. Plus, you won't be blindsided by any added fees or charges. See if you prequalify for a personal loan today.


How much does a personal loan origination fee cost?

Origination fees are one-time fees that are shown as a percentage and used to cover the costs of processing your loan application, verifying employment and income, and paying out the funds. Origination fees range from about 1% to 8% with most lenders. 

There are several factors that determine the fee amount, including the amount of the loan, the repayment term, and your credit score. Some lenders also consider your employment history, income, and if you’re using a co-signer. 

When you’re ready to shop for a personal loan, or just want to compare rates, explore all of your personal loan options by visiting Credible to compare lenders.


How do I avoid being charged an origination fee? 

Not all lenders charge an origination fee. But if the lender you choose does, there may be ways to negotiate the fee or have it waived entirely. 

  1. Price match
  2. Negotiate terms
  3. Use your banking relationship

Price match: Many lenders will modify loan packages and may even price-match. So shopping around for a lender that doesn't charge an origination fee is worth the time, especially if the interest rate is also competitive.

Negotiate terms: Know what you're paying and negotiate with your lender to reduce the fee or waive it entirely. Not all lenders will negotiate terms, but it never hurts to ask.

Use your banking relationship: If you’re a long-time customer of a bank or credit union, you may get the origination fees waived altogether. Banking institutions like to keep their best customers happy as it’s more profitable in the long run. 


Are origination fees worth the cost?

That depends. When you don’t pay the fee, you are getting the full loan amount you were approved for. Also, if your lender subtracts the origination fee from the total loan amount, you may want to borrow more than you need to cover the cost of the fee. 

Paying an origination fee might also result in a lower interest rate, which would lower your monthly payment. Additionally, it may make sense to pay origination fees if you need funds fast, have less than stellar credit, and/or the only lenders that will work with you charge origination fees.  

Another consideration is the repayment term of the loan because the fee is paid upfront. The quicker you plan to pay off your personal loan, the less sense it makes to pay an origination fee. 

Visit Credible to use their personal loan calculator and find the best personal loan rates for you.


What are some alternatives to personal loans?

Not certain a personal loan is right for you? There are alternatives to consider.   

Credit cards. A revolving line of credit, credit cards often come with low introductory rates for anyone with good credit history. You may also earn points or rewards. Shopping for a credit card? Visit Credible to find the right credit card for all of your needs.

Personal line of credit. A personal line of credit is like a credit card that you draw on and pay back on a rolling basis. Personal lines of credit may offer higher credit limits than credit cards.

Home Equity loan. If you have equity in your home, you can often borrow against the value you have built up.

401(k) loan. A 401(k) loan is a loan you take out against your retirement account. Rates are usually comparable but you risk losing the money you saved for your retirement if you default on the loan.

Peer-to-peer loan. This type of loan is funded by a single investor or many investors. The rates and terms are set by the people funding your loan rather than a financial institution. 

No one wants to pay more than they have to. But if you want to take out a personal loan, origination fees may be unavoidable. Some lenders don't require origination fees, while others do. One lender may charge a higher interest rate and no origination fee, while one charges an origination fee but a lower interest rate.

To get the most bang for your buck, it pays to shop around at a marketplace like Credible, where you can compare multiple lenders and rates all in one place.