Origination fee
An upfront charge for underwriting a loan - points on a mortgage, a percentage fee on personal loans.
An upfront charge for underwriting a loan - points on a mortgage, a percentage fee on personal loans.
The origination fee is what the lender charges to process, underwrite and fund the loan; on mortgages it is quoted in discount points (one point is 1% of the loan), and on personal loans it usually appears as an origination fee deducted from the proceeds. Because it is a mandatory cost of getting the money, it belongs in APR rather than in the headline rate - which is exactly how a lower rate with heavy fees becomes the more expensive offer.
The fee's direction matters: on a mortgage, points can be paid to buy down the rate, and the break-even math decides whether the upfront cost pays for itself before you refinance or sell. On a personal loan, a 1-6% origination fee taken off the top means you receive less than you repay - a 5% fee on a $20,000 loan delivers $19,000 while interest accrues on $20,000. Compare net proceeds and total repayment, never the APR alone.
Worked example
Two personal loans quote 9% APR for 36 months: one takes a 5% origination fee ($1,000 on $20,000), the other has none. Same advertised rate, different cash in hand and different dollars repaid - the fee is the whole difference.
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