What is A Personal Loan Origination Fee?
There comes a time in everyone’s life when he or she needs a little extra money. It could be because you want to make a big purchase for a house or car. It may be because some unexpected emergencies occurred and you need money fast. No matter the reason, it will happen to you at some point. You are going to need a loan. As with anything, there is a good way to go about getting a loan. There is also a terrible way to do it. I am an advocate of doing things the smart way. That involves learning as much as you can about the process so you can make sound decisions.
What is an Origination Fee and How it Impact Personal Loan
Lenders are not always the best at explaining all the little details. Details like fees, such as a personal loan origination fee are often hidden in the fine print.
A personal loan origination fee is a combination of several different fees. Really this makes things easier for the lender. They hit you with this one fee that is some percentage of your loan, perhaps 10 percent, to cover all of their administrative costs like filing the application, running a credit check, and sending the money to your bank account. Continue reading to find out more details about personal loans, including a personal loan origination fee and where to get a personal loan.
Origination fees are often just a percentage of the loan amount and in most cases is somewhere between 1% and 8% on typical personal loans in the United States.
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Your origination fee could be determined by total amount of the loan, your credit profile and how long the loan term is, the purpose of the loan and even if you have a co-signer. It depends on the lender. As you shop lenders, it’s critical you ask them about origination and other fees. Most likely they won’t negotiate and if you don’t like the deal don’t be afraid to walk away.
What Fees Are Associated With A Personal Loan?
Every loan has fees. You just cannot avoid it. You should, however, know what they are and try to minimize them as much as you can. Whenever possible avoid an application fee. Some lenders charge you just to fill out the application. You pay this whether you are approved or not. You must pay this fee out of pocket. It is usually a small fee, less than $50. For me, it is the principle of the matter. A lender charging this fee is just looking to get some quick money out of you. Avoid it whenever you can. Most other fees you cannot negotiate.
Remember the personal loan origination fee from earlier in this article? Usually, this is an application fee and administrative fees rolled into one. This fee is for the cost of the application, running a credit check and handling all the administrative pieces of your loan. This fee does not come out of your pocket. It comes off the top of your loan. What this means for you is, if you ask for a $5000 loan and the lender charges a 10 percent personal loan origination fee, that means the lender is taking $500 off the top of your loan. You only see $4500 of the loan right from the start.
What Is The Process For A Personal Loan?
The process for a personal loan may seem daunting. It is not as bad as it may seem, once you understand the personal loan process. The first step is knowing why you want the loan. This guides what type of loan you need. For example, if you want to consolidate debt, you would not apply for a mortgage. Then you should do a little bit of research to find loan places that meet your needs. You want a loan that fits your budget and has an acceptable interest rate. When you have decided where to apply for your loan, be sure to take a look at the fees, including the personal loan origination fee.
If you’re thinking “Oh my, this process sounds incredibly intimidating!”, we agree. Another thing you can do is let Loanry try to help you. We partnered up with Fiona to bring you the best lenders for your needs. All you need to do is enter your information and see whether you could be paired up with lenders which may make you an offer within the next couple of minutes. You can start here:
Once you have done that, now it is time to apply for the loan. Depending on your lender, you may be able to apply online. Either way, you must answer a list of questions, including income, rent/mortgage payments, and identifying information such as name, address, and social security number. Depending on the lender, they may ask more detailed questions. You will have to provide documentation for proof of income and a picture ID. The lender does a credit check. You agree to that as part of your application. Then, you wait for the decision.
Other Loan Phrases I Should Know
When you are applying for a loan, you should read all the documents carefully. I know many people do not because it is full of a bunch of words most people do not know. I’m going to help you out by defining some loan related terms here for you. I talked about a personal loan origination fee above and that is a big one that you should understand.
An unsecured loan does not have any type of collateral attached to it. These loans a riskier for the lender and typically have a higher interest rate.
A secured loan has collateral attached to it and are less risky for the lender. These loans have lower interest rates.
Collateral is a tangible asset that you attach to your loan. You are promising to pay the loan, or you will give up the asset to the lender. Your car is considered collateral in an auto loan, the same is true for your house and a mortgage.
Default is when you do not pay the loan as promised.
Interest is basically what the lender charges you to allow you to borrow money. The interest has an annual percentage rate (APR) which you pay for the life of the loan. The lender has some flexibility in what they charge you in interest. The lower your credit score is, the higher your interest rate.
What Else Should I Know About A Personal Loan?
I have briefly touched on interest above, but I would like to bring it up once more. I want to make sure that you have a full understanding of the impact of your interest rate on your loan. Also, I am going to use an example to highlight how interest impacts your payment. This is purely an example, these numbers are not accurate. You want to borrow $4,000 and you need $4,000, but you know the lender has a personal loan origination fee of 10 percent. That means borrowing $4,000, you only get $3,600. Now, you need to borrow $4,500, which means after the 10 percent personal loan origination fee, you get $4,050.
Let’s see what interest does to that $4,500. You have pretty good credit, so your interest rate is 10 percent. That means you are paying $450 on top of the $4,500. Now, your total loan amount become $4,950. Remember you only wanted to borrow $4,000. Let’s see how that breaks down per month. You only want a loan for 36 months. That means your monthly payment is $137.50.
Let’s see how that changes when your credit falls into the bad zone. You have bad credit, so your interest rate is 20 percent. You are borrowing $4,500, so your interest amount is $900. Now, your total loan amount becomes $5,400. Over 36 months you end up paying $150. Your payment has now increased by a little over $20 per month. That may not seem like a lot of money to you, but for some people it is significant.
The Ugly Side Of Personal Loans
Often times when you are looking for a personal loan, you are in a position where you need the money. This can be a scary place, especially if you do not know much about the loan process. Think about it, you are desperate for the cash and you take the first loan you can get. Most likely, you will fall into a personal loan trap. Loan traps can take the shape of many different things. It can mean ridiculously high interest payments. It might mean an astronomical personal loan origination fee.
The better credit you have, the lower the interest rate. With a bad credit score, you may not qualify for an unsecured loan and may need a secured loan or co-signer.https://t.co/byWXDhqMxq pic.twitter.com/xw85udYLTa
— Loanry.com | Loan Shop ? (@LoanryStore) July 13, 2019
Keep in mind, there are many people out there preying on those in vulnerable situations. They are looking to scam you. If you make a quick decision without thinking it through, you might get caught up in a scam. You need to be aware of the lender you are using. Use a personal loan checker to make sure you are getting best deal. Read all of the fine print to understand their fees and interest. You should not jump into a personal loan without knowing all the information.
My Credit Score Scares Me
Does your credit score scare you because you do not know what it is? Perhaps you do not understand it and find it scary. A typical credit score range from 350 to 850. Most people have a credit score somewhere between 600 to 750. Good credit falls somewhere between 670 to 800. Anything below 570 falls into the danger zone of bad credit. When you have bad credit, it is much harder to get a good interest rate. You may also find that you have a higher personal loan origination fee and it is difficult to be approved for a loan.
You should pull your credit report and look at your credit score once a year. This helps you remain in control of it. You can also check it for errors, so you can address them. If you do not know your credit score, you cannot do anything to improve it.
How Can I Fix It?
The good news is, you can always work to improve your credit score. I will not lie to you, it takes hard consistent work, but it is possible. You must be focused on the goal of repairing your credit. Start by creating a positive payment history. That means you need to be sure to pay all your bills in full and on time. Obtaining a personal loan may help you to improve your credit because it allows you to work on a positive payment history. You may have to shop around for a loan that meets your budgetary needs. You also want to make sure you are hit with a high personal loan origination fee.
I’m Not Sure I Can Afford A Personal Loan
This is the first question you must answer for yourself. Only you can decide if you can afford a personal loan in your budget. You need to look at your budget and determine how much money you can pay in a monthly loan. If there is not extra money, stop there. You cannot afford a loan and should not even consider one. Doing so only puts you in a terrible financial position. If you think you can afford a loan, be realistic in what you can afford to pay each month. When you think about how much you want to borrow consider the personal loan origination fee and interest rates in your calculation.
I Am Terrible At Budgeting
Creating a budget for yourself is key in controlling your finances. Sometimes, when I talk about budgeting, I swear I can hear people groan. No one ever wants to put themselves on a budget. If you think about it, there is not other way to control your spending and make sure you have money for all of the things you need, and some of the things you want. You need to make it a habit and then it gets easier. There are so many budget apps and websites available for free. It is silly for you not to use one to put yourself in a better place.
— Loanry.com | Loan Shop ? (@LoanryStore) July 25, 2019
How Can I Save Money?
Saving money may not seem like a viable option for you. It is hard, especially when you feel like your money is already spent before you earn it. There are many ways to save money. However, it takes practice and it means giving up some things. You can think of it as a temporary solution until you have some breathing room with your finances. Take a look around your house and see if you have items you can sell. This is a quick way to make money and clean your house of clutter. Consider getting a part-time job to earn some extra cash.
Take a look at your spending and cut out those daily coffee stops, or lunches out. Limit your meals out to once a week so that they become special events and not everyday occurrences. Consider getting rid of your tv for a few months. You can save a lot of money and invest that time into doing something more meaningful.
Are There Any Other Options To A Personal Loan?
There are many alternatives to a personal loan from a traditional lender. You could consider borrowing money from family or friends. This eliminates the extra money spent on a personal loan origination fee and interest. Instead of borrowing money at all, you can save money for the items you need, or want. This prevents you from having to borrow any money at all. That way you would not have to take on any more debt.
The most important thing you should take away from this post is the fees associated with a personal loan. You need to pay attention to things like the personal loan origination fee and interest rates. These things add on to the amount of money you borrow. If you are aware of them, you can do some research for the best rates.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.