Definition
An upfront fee a lender charges for processing and funding a loan, usually a percentage of the amount borrowed. On mortgages it appears in closing costs; on personal loans it is often deducted from the money you receive.
Why it matters
Origination fees are why the amount you get can be less than the amount you repay, and why a low advertised rate can hide an expensive loan. APR includes the fee, so comparing APRs rather than rates reveals the true cost.
Example
A $20,000 personal loan with a 5% origination fee delivers $19,000 to the borrower's account, but interest accrues on the full $20,000. A competing loan at a slightly higher rate with no fee is actually cheaper, which the two APRs make plain.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.