When you are looking for a loan, you are likely wondering how much it will cost to originate your loan, the fees involved and the impact of added costs on the affordability of the loan. As you read through these tips and insights, remember that every loan is different, and you should read all contracts before proceeding. It’s comforting to know you have options — you are not stuck with big banks that can make the lending process difficult.
What Are Loan Origination Fees?
Loan origination fees are costs tacked on to a loan that pay for additional services the lender provides. Generally, origination fees include:
- Background and credit checks
- Processing
- Inspections
- Appraisals
- Closing fees
- Fees related to online or in-person service
Remember, however, that the Federal Trade Commission has warned borrowers that lenders could try to scam consumers by requiring them to pay fees upfront. This feature is not how loans work. Generally, fees are rolled into the loan, or you may use a payment plan to pay them off after the loan is approved or closed.
Can You Avoid Loan Origination Fees?
At times, lenders advertise that they do not charge origination fees. Some lenders might add these fees to the interest rate, raising the overall interest you pay. Sometimes, you might ask the lender to waive fees, or you might restructure the loan to remove these fees and avoid certain costs.
Keep in mind, however, that origination fees are often not that expensive when compared to the life of the loan.
Consider a 10-year personal loan for $50,000. Over the life of the loan, a total of, for example, $400 in origination fees is not all that expensive. However, $5,000 in origination fees would seem outrageous. Use your best judgment when speaking with a lender. If you’re looking at mortgage origination fees, they pale in comparison to the total value of the loan.
Whether you roll the fees into the loan, pay them with your closing costs or avoid them altogether, you should know all the fees upfront. If you’re surprised at the last minute, you should reach out to the Federal Trade Commission, ask an attorney or speak directly with your loan officer.
Questions to Ask Your Lender About Loan Origination Fees
If you’re not sure what to do or where to start, ask your lender questions like:
- Are there origination fees?
- What are my payment options for origination fees?
- Does my APR include my origination fees?
- Are other fees involved?
- How can I reduce my origination fees?
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Frequently Asked Questions
What are typical loan origination fees?
Origination fees average from 0.5% to 1.5% of the total value of the loan.
How do you negotiate origination fees?
Ask your lender if you can waive any aspect of the fee structure, obtain a discount or restructure the loan to reduce costs.
About Patton Hunnicutt
Patton Hunnicutt is a contributor and editor at Benzinga. He’s worked for several years on financial content, addressing issues related to personal finance, investments, retirement, and more.