Origination fee

An origination fee is the lender's compensation for the work of approving the loan. It's expressed as a percentage of the loan amount, and the size varies meaningfully by product — personal loans tend to run modest single-digit percentages, conforming mortgages run lower, and subprime or marginal-credit loans can run several times higher. The exact range your lender quotes is in their offer disclosure, not in a table you can look up — it's set per applicant.

The fee is what makes your stated interest rate and your effective APR disagree. APR — required by the Truth in Lending Act — folds the origination fee into the cost-of-borrowing number, so it's always at least the interest rate and often noticeably higher. If you're comparing two loans where one quotes a lower rate but charges a fee, the effective APR is what to compare, not the rate. PayoffMath's effective APR calculator runs that math for any specific fee/rate/term.

The same dollar fee hurts more on a shorter loan. A $400 fee amortized over 60 months has a smaller per-month effective cost than the same fee on a 24-month loan. This is why some short-term high-fee consumer products can show eye-watering APRs even when their stated interest rates look reasonable. If you're picking between a short and long term and the fee is the same dollar amount either way, the fee math alone favors the longer term — though that's a separate question from whether the longer term suits the rest of your situation.

Treatment differs by loan type. Personal-loan origination fees are typically deducted from the disbursement before you receive the cash. Mortgage origination fees are usually paid at closing, sometimes rolled into the loan as financed principal. Business and SBA loan fees often combine a packaging or guarantee fee paid up front with a smaller origination fee built into the disclosure. The mechanics of when the fee is paid matter for cash-flow planning even when the dollar amount is the same.

A 'no origination fee' loan isn't necessarily cheaper. Lenders that waive the fee usually compensate with a slightly higher interest rate. Whether that trade is worth it depends on how long you'll actually carry the loan — short payoffs favor the no-fee version; long carries favor the lower-rate-with-fee version. The comparison you want isn't 'fee vs no fee,' it's APR vs APR over your expected hold period.