What is a Personal Loan Origination Fee?

Personal loan origination fee by definition

A personal loan origination fee is a one-time charge that some lenders impose to cover the administrative costs of processing the loan. The fee varies per lender and could either be a fixed amount or a percentage of the total loan amount. 

This fee may also be referred to as an underwriting, administrative, or processing fee and is commonly found in mortgages.

It's important to compare origination fees across different lenders to understand how they impact the overall cost of borrowing.

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What is the typical rate for origination or processing fees in personal loans?

In Singapore, origination fees for personal loans vary by lender. Some lenders waive this fee entirely, while others charge a percentage of the loan, typically at 1%. The exact rate may also depend on factors such as your creditworthiness, chosen loan tenure, and income profile.

Origination fees are factored into the loan’s Effective Interest Rate (EIR), which provides a more accurate picture of the total borrowing cost by including both interest rates and upfront fees.

While some lenders add this fee to the loan balance, it’s more common for them to deduct it from the approved loan amount. If the fee is deducted upfront, be sure to borrow enough to meet your financial needs after the deduction is applied.

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Example of how origination or processing fees affect your loan

Suppose you need S$20,000 to consolidate debt, and your lender charges a 5% processing fee. If the fee is deducted from the loan amount, you would need to request S$21,000. Once the 5% fee (S$1,000) is applied, you’ll receive exactly S$20,000.

However, your repayment would be based on the full S$21,000 loan balance rather than the amount you received.

To understand the impact of an origination fee on your loan, consider using a personal loan calculator.

Should you pay origination or processing fees for a personal loan?

An origination fee shouldn't automatically be a dealbreaker when considering a personal loan. In some cases, loans that include this fee may actually offer a lower Effective Interest Rate (EIR), making them more cost-effective than loans without one.

Some mortgage lenders in Singapore provide a pre-qualification option, allowing you to see potential loan terms—such as the amount, interest rate, and repayment period—without impacting your credit score. Comparing multiple lenders can help you find the most affordable loan, even if it includes an origination fee.

While banks typically have lower fees, moneylenders are permitted to charge a loan origination fee of up to 10% of the loan amount. Moreover, unlike mortgage origination fees, which may be negotiable, personal loan origination fees are typically fixed.

Other personal loan fees to consider

• Late payment fee: Missing a loan payment can result in a penalty of up to S$60 for each month of late repayment, though some lenders offer a grace period before charging it. To prevent missed payments, consider setting up automatic payments or due date reminders. It’s important to remember that late payments can impact your credit score, which could, in turn, affect your chances of borrowing in the future.

• Prepayment fee: While not as common as in mortgage loans, some lenders impose a prepayment penalty if you pay off your loan early. Therefore, always review your loan agreement to ensure there are no unexpected charges for paying off your loan early.