Consumers Hate Fees — So Why Are Personal Loan Origination Fees Still Common?

Imagine borrowing what you believe to be a $10,000 personal loan — only to see $9,200 land in your bank account. That’s exactly what happens to borrowers who don’t know about origination fees or how they work.

And even for borrowers who read their loan agreement line by line, the idea of paying three figures to borrow four doesn’t sit so well. After all, origination surcharges peak at 12 percent of your loan amount.

So, why are some lenders still charging personal loan origination fees? Why haven’t they followed personal loan prepayment penalties out the door?

Bankrate asked various lenders and experts. Here’s what we learned.

First, the problems with origination fees

J.D. Power noted in its 2025 consumer satisfaction study that fees are the most frequent issue cited by consumers — 28 percent of borrowers with a problem complained about an unexpected fee.

“We’ve always made a strong effort to be very clear on this and what the disbursal looks like,” says Best Egg president Bobby Ritterbeck, whose company charges an origination fee of 0.99 percent to 9.99 percent of the loan amount. “And we actually give all of our customers an option to say, ‘Hey, would you prefer to have the fee on top of the loan? So you’d get the loan amount that you requested, or would you just prefer it to be taken out of the proceeds?’”

In other words, if you want the $10,000 loan and don’t want to end up with $9,200 in your bank account, you must actually borrow something like $10,800.

Communication about the fees can be solved with good service, sure, but the bigger problem is that they exist at all.

If you’re borrowing to consolidate higher-interest debt — by far the most popular use-case of personal loans — owing your lender a larger balance (or paying a large, upfront fee) is especially problematic. It could cause one of these scenarios:

• You can’t qualify for the amount you need (after accounting for the fee).
• Rolling the fee into the loan amount could make it less affordable to repay.
• The fee amount forces you into a longer repayment term (and you accrue more interest).

So, why are personal loan fees sticking around?

Private student loans generally don’t carry origination fees. Auto loans and mortgages do, but because these loans are typically much larger than personal loans and involve collateral, the origination process is more involved. 

The average personal loan, meanwhile, was $6,200 in the final three months of 2024, according to TransUnion. So, again, why the fee?

Despite J.D. Power’s data, lenders say it’s a transparent, upfront way of covering the cost of processing and funding their loans. The logic follows: If you’re a for-profit institution, you’re always seeking to drive value for your shareholders. Charging fees to your customers is one way to do it, even if it’s short-sighted. (Those customers might not stick around if they can get a no-fee personal loan elsewhere.)

“It is generally a result of the lender’s capital structure, how they fund their loans, and the overall credit quality of the borrower,” says J.D. Power head of lending intelligence Bruce Gehrke. “In some cases, the investors who are providing the funds require upfront fees to defer some of the risk associated with providing the liquidity.”

Origination fees are more common with marketplace lenders, says Ritterbeck, whose Best Egg platform specializes in connecting borrowers with direct lenders.

“You won’t see origination fees as often when you’re dealing with a bank or a balance-sheet lender, somebody who takes on that loan for the life of the loan,” adds Ritterbeck.

Origination fees also help some lenders mitigate risk, even if they plan to hold the loan in-house. They might charge higher fees to less-qualified loan applicants. As with your personal loan interest rate, the better your credit score, the less likely you’ll face the surcharge.

3 key takeaways for a world that hasn’t let go of origination fees

If origination fees for personal loans are indeed here to stay, the best advice for consumers is to control what you can control.

1. Strengthen your credit before applying

This one’s simple. If you monitor and maintain your credit, you’ll have your pick of lenders and can prioritize those that don’t charge upfront costs for origination. And even if you select a lender that charges such a fee, yours is likely to be lower if you come in the door with good-to-great credit.

2. Shop ‘til you drop (or the fee does)

One common mistake that personal loan applicants make, the experts say, is settling on the first lender that grabs their attention. 

“A lot of consumers are bombarded with solicitations for these types of loans in their mailboxes and in their email boxes,” says Alliant Credit Union director of products Sean Briscoe. Alliant charges no origination fees, and Briscoe believes origination fees are on the decline in general. 

“Sometimes you find it’s the right time, you’ve got the need, you want to make a decision, you reach for the first advertisement in front of you, and you go down that path,” he adds. “Even the digital engagement of applications today makes it so seamless and easy, you’re well into the application before you might even understand that you are.

“A little bit of shopping, a little bit of online research can find consumers a better rate, no fees, better terms that fit their needs just by comparing a little bit.”

Bottom line: Ask several lenders about their fees before you jump through the hoops of applying for a personal loan. And consider credit union loans and other financial institutions that treat you as a member, not a customer.

3. Understand the importance of APR — and your term

The J.D. Power study noted that consumer satisfaction falls when borrowers aren’t told about a fee until after loan approval. To avoid confusion or disappointment, prequalify with multiple lenders — that is, confirming your eligibility and checking your potential APR without a hard credit check.

“So, if somebody is trying to compare a loan that has an origination fee and a loan that doesn’t have an origination fee, if you use APR, that’ll make it apples to apples,” says Best Egg’s Ritterbeck. The caveat, he adds: “It assumes you’re paying both as agreed over, over time.”

Consider the example (below) of borrowing $10,000 and agreeing to repay it over three years. It’s entirely possible that a loan with a higher interest rate — but no origination fee — (loan 1) is more economical than a lower-rate loan that does carry a fee (loan 2).

Consider varying repayment terms, too. At online marketplace lender Happy Money (fee up to 5 percent of the loan amount), for example, your fee depends mostly on your term. (A shorter term also means forking over less interest to your lender.)

With that said, Alliant Credit Union’s Briscoe was among experts who emphasized that if you truly shop around with a discerning eye, “generally, in the marketplace, you can get the same terms without paying the fee” at all.