Origination Fees: Why a 7.99% Loan Can Cost More Than a 9.49% Loan
The interest rate is the headline. The APR is the price. Origination fees are the gap between them, and they're deducted before you ever see the money.
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Key takeaways
- Origination fees of 1%–10% are deducted from the loan proceeds at funding.
- Compare APR to APR, never interest rate to interest rate — APR already folds in the fee.
- Shorter terms make the same fee hurt more.
An origination fee is a percentage of the loan, usually 1% to 10%, taken out of the proceeds at funding. Borrow $10,000 with an 8% fee and $9,200 lands in your account, but you repay $10,000 plus interest. That's why federal truth-in-lending rules require lenders to disclose an APR that folds the fee in.
7.99% + 8% fee = 11.58% APR
$10,000 over 60 months. The 9.49% loan with no fee is cheaper and puts $800 more in your pocket on day one.
How to compare two offers in under a minute
- Ignore the interest rate. Compare APR to APR; it already includes the fee.
- Check the net disbursement. If you need exactly $10,000, a loan with a fee means borrowing more than $10,000.
- Ask whether the fee is deducted from proceeds or added to the balance. Both cost you; one leaves you short.
- Shorter terms make fees hurt more, because the same fee is spread over fewer months. The 7.99% / 8% loan above would be 13.5% APR on a 36-month term.
Fees aren't automatically bad. A lender that charges one may approve a profile that a no-fee lender declines. But treat the fee as part of the price, because it is.
The one-line rule
The interest rate is the headline. The APR is the price.
