A personal loan is a great way to close the gap between the money that you need right now and what you have. If you've been faced with an unexpected expense, you may be thinking about seeking a loan like this from either your bank or another local lender. Before you go too far into the loan shopping process, though, you should understand one of the expenses that you're likely to encounter. It's labeled as an origination fee. Here's what you need to know about this fee before you apply for that loan.
What Is An Origination Fee?
An origination fee is a one-time expense charged by your lender. It's essentially a processing or service fee charged for actually issuing the loan. Most origination fees are expressed as a percentage of the total loan amount, but some are done as a flat fee.
Is The Origination Fee The Same For Everyone?
The origination fee for a personal loan can fall anywhere within a standard percentage range. What you pay for an origination fee may not be the same amount that another borrower pays. The percentage or amount that you pay is dependent on a few different factors, and you won't know exactly what your fee is until you actually talk with the lender.
The lender will use your current credit standing to determine how much your origination fee is. Basically, the better your credit history and debt-to-income ratio, the lower your origination fee will be. Banks charge a higher origination fee to those who are a greater credit risk and a lower fee to those who are seen as a reliable borrower.
Do You Pay The Origination Fee Up Front?
Unlike closing costs in a home mortgage, origination fees aren't paid up front during the application process. Instead, it is deducted from your total loan disbursement. That's part of why it's so important to ensure that you know how much you'll be paying, because the amount you receive directly will be reduced by that fee. That means that if you actually need ten thousand dollars, you'll need to apply for enough to cover the origination fee as well as the amount that you need.
Does Every Lender Charge An Origination Fee?
Origination fees are a pretty standard thing, though the amounts do vary widely by lender and by credit history. No matter who you're looking to borrow from, you can pretty much expect that you'll pay some form of an origination fee from your loan. You may, however, find that local credit unions and smaller financial institutions are less likely to charge this fee.
Should You Just Find A Lender Who Doesn't Charge The Fee?
You might think that you're better off shopping for a lender who doesn't charge the origination fee so that you don't have to borrow quite as much. Unfortunately, this isn't as logical as it might seem. While many institutions do charge this fee up front, you'll find that, as a result, the interest rates on your loan are often lower, or you have fewer service fees associated with borrowing from the lender.
If you borrow from a lender who doesn't charge an origination fee, you may face additional service fees, higher interest rates, and other associated expenses during your repayment period. It's best to compare the total cost of the loan and its repayment when you're comparing lenders. That way, you can see clearly which loan would be the better financial option for you.
The more you understand about securing personal loans and what to expect of the fees associated, the easier it will be for you to get the money that you need. Talk with a lender today for more info about your options for funding your current needs.