An origination fee is an upfront charge that a lender imposes to cover the costs involved in processing a new loan application.
It is typically a percentage of the total loan amount and is deducted from the loan proceeds, meaning the borrower receives the loan amount minus the origination fee.
This fee compensates the lender for the cost of underwriting the loan, processing the application, and other administrative services. Origination fees can vary by lender and can sometimes be negotiated or waived.
For example, in mortgages, the origination fee is often between 0.5% and 1% of the loan amount, while for personal loans, most Kenya banks charge 5%.
Paying this fee is essentially the cost of doing business with a lender, and it is important for borrowers to consider this cost when shopping for loans, as it can affect the overall cost of borrowing.
Lenders charge this fee to cover:
- Administrative costs
- Credit checks
- Other processing expenses
While not all lenders charge origination fees, it’s essential to shop around to find a lender that offers mobile loans without such fees to minimize the total cost of borrowingThe cost of borrowing refers to the total expenses that a borrower incurs when taking out a loan or using credit. This cost is not just the interest r....