If you’re in need of a loan to get your business moving, there’s a litany of fees you can expect to pay in addition to your final loan amount.

When you see these fees, you may wonder what they are and why they’re considered an important part of the loan process.

If you’ve asked, “What is a loan origination fee” and want to know why it’s such an important part of getting a loan, read on to find the answer.

What is a Loan Origination Fee?

Every loan, from mortgages to personal loans, require underwriters and other staff to process it. The origination fee helps to cover the cost of this process including the cost incurred to verify your information.

The loan origination fee may also be referred to as points depending on the lender. For any type of loan, you can expect the fee to range anywhere from one to as high as eight percent of your total loan amount.

The percentage of your particular origination fee typically depends on your credit score, the length of the loan, and other terms. Some banks may offer this fee for as low as half of one percentage point.

Determining Your Loan Origination Fee

A few lenders might not charge an origination fee at all, however, they will likely add the cost to process your loan some other way. Read your terms carefully so you can be sure of exactly what fees you’re paying.

Ask your lender about the loan origination fee and see if they can break down the costs for you. In most cases, the charge will hinge on your total loan amount, length of credit history, and your credit score.

These fees are important since they do cover some essential costs to get your loan processed. Employees who work to approve your loan need to be paid, and the origination fee helps to give them an incentive and cover those costs.

Are These Fees Worth It?

Paying fees is never fun, but sometimes they’re just part of the process. If you don’t have an origination fee, you may end up paying a higher interest rate instead.

Paying these fees could help to lower your rate which in turn will lower your monthly payments. This can help you pay down the loan faster in the long term.

While an origination fee might be painful to pay upfront, it could be beneficial to the bigger picture. Shop around and ask different lenders if they charge this fee and if so, how paying it benefits you.

Using a Loan to Help Your Business

Now that you know the answer to the questio “What is a loan origination fee?” it’s time to decide if the loan as a whole will benefit you and your business endeavors. If you don’t mind paying the fee to get a lower rate or better terms, it’s worth the price to pony up the cash when you first apply.

If you’re looking for ways to fund your business, visit our website today and contact us for more information to get started right away.