Lenders occasionally charge an origination fee as a way to
compensate themselves for generating the loan itself. Not only is this done as
a way to cover their own expenses related to creating the loan, but it is extra
money for them on a loan that may be potentially risky. In other words, it is a
way to add extra interest on the loan itself.
Most loans that do include an origination fee in the United States range
between 0.5% to 1% of the total principle of the loan. This is a big way that
the lender collects money for the work that they put into a loan on the front
end. They will also be compensated via the interest payments over the life of
the loan, but this is a great way for them to capitalize on some return immediately.