Money costs money. That’s the inevitable truth you have to accept if you’re considering taking out a loan. That’s not necessarily bad news. Think that with the loan funds, you’ll be closer to realize your projects, such as growing your business. As a small entrepreneur, you’ve probably spent some time debating the costs and the various fees that come with a loan. One example is the loan origination fee.
What is an origination fee and why do you have to pay for it? Moreover, what is a fair origination fee?. What’s considered a good rate and how can you make sure you are not paying more than you should?. Lastly, is there any way to reduce this origination fee when taking out a loan? All those are valid questions that you should ask yourself before making such an important decision. And you have arrived at the right place to receive the answers you need.
What is an Origination Fee and Why Do You Have to Pay For It?
There may be several fees associated with taking out a loan, and one such fee is an origination fee. An origination fee is a fee that must be paid by the borrower to the lender for the applying and processing of the actual loan. When you are taking out a loan, this fee should be taken into consideration along with other closing costs (if any) and the interest rate. The sum of all those elements will be your total loan cost.
Usually, the origination fee is paid upfront and is required in order to release the actual loan money to you.
The reason why you have to pay an origination fee is that the lender is working to make sure that you get the loan. Basically, you can think of it as the lender’s commission. The lender has to do the research and review the information and it takes work to do so. They must do their due diligence with the information they receive from you and make sure that your business is in good standing to secure the loan. Loans are an important part of any business to continue to grow in the long term, but the lender wants to trust that they will get their money back.
To determine this, the lender may ask you for information about your income, assets, liabilities, and your estimated credit score not just on an individual basis, but on your business as well. Your lender may also ask you for other documents: pay stubs, identification, bank statements, etc. This step of the process is what leads to the origination fee. You can get here the complete list of documents your lender may require.
In order to calculate the loan origination fee, you need to first understand what “points” are. Points are the percentages used to figure out what the fee will be. They are based on the loan amount.
Let’s say the loan you take out is for $100,000 and you receive a point or percentage of 1%. This means your origination fee would then be $1,000 and this would need to be paid upfront.
Depending on the type of lender, the amount calculated from the points the origination fee might not be the only fee you have to pay. There can be other fees and closing costs when taking out a loan from a lender. It’s best to be prepared for these fees so you can calculate this in your total fixed cost.
What’s a Fair Loan Origination Fee?
In order to calculate what is considered a fair origination fee, first shop around and find out what offers you’re getting. Depending on what type of loan you are taking out will determine what your loan origination fee will be.
Let’s take a look at the averages of the origination fees in the most common types of loans:
Standard rates for mortgages are between 0.5% and 1%.
1% to 8% is what most will charge depending on what lender you go to.
For this type of loan, typical rates are 1% to 7%.
How to Lower Your Loan Origination Fee
Obviously, you’ll want to reduce your loan origination fee as much as possible. Can you do that? Yes, in most cases. Be ready to negotiate. By talking to your lender, you can discuss options on how this fee can be lowered. For example, the more money you borrow, the more leverage you have. Typically, the higher the amount the loan is, the more you may be able to negotiate your fee. You may also be able to negotiate it by agreeing to shorter loan terms.
Additionally, if your credit score is higher than most, then you might have a better chance to negotiate your origination fee lower or even have them get rid of it entirely. If you have a lower credit score, the higher the origination fee will be. So, keep this in mind and increase your credit score as much as you can before approaching a lender.
Reduce Your Business Loan Fees With Camino Financial
At Camino Financial, we can help you. Our motto is No Business Left behind. This means you can count on us to do our work to match you with the best financing solution with the most favorable conditions. We only charge you one origination fee, and that’s it! There are no other fees at all, and there won’t be any surprises: we are transparent with our customers.
Let us break it down.
Our origination fees go like this:
- 6.99% of the total loan amount for our microloans (up to $75,000)
- 5% of the total loan amount for our business loans (up to $400.000)
We don’t require collateral, either. And you don’t need a minimum credit score or any credit history at all to apply for a loan.
To better calculate the cost of your loan, we invite you to use our business calculator. You can get in seconds a breakdown of your potential loan, including your loan origination fee, the interests, and your monthly payments.
Camino Financial is ready for you and your business to take the next step: simply get a quote to know instantly if you prequalify.