Explaining Loan Origination Fees

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.