Loan Origination Fee

See exactly how much an origination fee costs, how much cash you actually receive and how far the fee pushes up your real borrowing rate.

How the calculation works

The fee is calculated as a percentage of the loan plus an optional flat amount: fee = loan × % / 100 + flat fee. Many personal-loan lenders deduct it from the proceeds, so you receive less than you borrow while interest still accrues on the full balance.

The monthly payment comes from the standard amortization formula applied to the full loan. The effective rate is the internal rate of return of the cash flows — the monthly rate at which the net proceeds equal the present value of all payments — multiplied by 12. That is the same annualizing convention used for the APR under the Truth in Lending Act, so the figure approximates an APR when the origination fee is the only finance charge.

Inputs: loan amount, origination fee in percent (up to 10%), flat part of the fee, annual interest rate, and term in years (1–30).

Worked example

You borrow $20,000 at 12% for 3 years with a 5% origination fee. The fee is $1,000, so $19,000 lands in your account. The monthly payment is about $664, totaling about $23,914 over 36 months. Measured against the $19,000 you actually received, the effective rate is about 15.61%, not 12%.

Things to keep in mind

• If you need a specific amount in hand, borrow amount ÷ (1 − fee %). To net $20,000 with a 5% fee you need about $21,053.
• The shorter the term, the more a one-time fee inflates the effective rate.
• On mortgages, origination charges appear on the Loan Estimate and Closing Disclosure; compare them across lenders together with discount points.
• Repaying early does not usually refund an origination fee, which makes it costlier if you plan to pay off fast.