What is an origination fee?
An origination fee is an upfront charge a lender imposes to process, underwrite, and fund a new loan, commonly expressed as a percentage of the loan principal.
When a lender approves your loan application, they charge an origination fee to cover the costs of processing paperwork, verifying your credit, underwriting the application, and funding the loan. This fee is typically calculated as a percentage of the loan amount, often ranging depending on the loan type and lender's pricing structure.
The origination fee is deducted from your loan proceeds at closing or added to your loan balance, meaning you pay it whether you see a separate check or not. On a $20,000 personal loan with a 1% origination fee, for example, the fee would be $200. This charge appears on your loan's Loan Estimate (provided within three business days of application) and on the Closing Disclosure (given at least three days before you sign final documents). Understanding where this fee falls in your total borrowing cost helps you compare offers across lenders.
Personal loan providers and other lenders in the Southern and Central United States disclose origination fees upfront as part of the standardized loan estimate process, so you can see the exact dollar amount before committing to the loan.