Loan Origination Fee Calculator
A loan origination fee is a percentage of the loan amount charged by the lender at closing. One origination point equals 1% of the loan amount. This fee increases the true cost of borrowing above the stated interest rate. The effective APR incorporating the fee is computed by finding the rate at which the present value of all payments equals the net proceeds (loan minus fee). Enter your loan details and origination points to see the dollar cost and effective APR impact.
Origination fee and APR formula
Fee = Loan * points / 100. Net proceeds = Loan - Fee. Effective APR: solve r such that Net proceeds = M * [1-(1+r)^-n]/r, then APR = r * 12 * 100.
The monthly payment M is calculated on the full loan amount at the stated rate. The effective APR is then found numerically (Newton's method) as the monthly rate where the present value of all payments equals net proceeds, converted to annual.
Why origination fees matter
Origination fees may seem small but significantly affect short-term loans. A 2% fee on a $20,000 loan is $400. On a 60-month loan at 9%, this raises the effective APR from 9% to approximately 9.77%. On a 12-month loan, the same fee pushes the APR much higher, because the fee is spread over fewer payment periods. Always compare loan offers using the Loan Estimate APR, which under Regulation Z must include fees.
Frequently asked questions
What is a loan origination fee?
A loan origination fee is a charge by the lender for processing and underwriting a loan. It is typically expressed as a percentage of the loan amount (called points). One point equals 1% of the loan. Origination fees are paid upfront at closing and are part of the total loan cost disclosed in the TILA Loan Estimate.
How does an origination fee affect the APR?
Because the origination fee is a cost of borrowing, it is included in the APR calculation under Regulation Z. The effective APR is higher than the stated interest rate when fees are present. For short-term loans, even small fees can significantly raise the APR.
Should I pay origination fees or take a higher rate?
This is the points decision. Points lower your interest rate but cost money upfront. If you hold the loan for a long time, paying points often wins. If you sell or refinance soon, avoiding upfront fees is usually better. Calculate the break-even months by dividing the fee by the monthly savings from the lower rate.
Are origination fees negotiable?
Often yes, especially with banks and credit unions. Online lenders and some SBA loans have fixed origination fees. Under RESPA (for mortgages), certain fees are capped or prohibited. Review the Loan Estimate form for itemized fee disclosures.
What is the difference between an origination fee and discount points?
An origination fee compensates the lender for processing the loan; it does not necessarily buy a lower rate. Discount points are prepaid interest that explicitly buys down the interest rate. Both are expressed as percentages of the loan, but their purposes differ.
Official sources
- CFPB Regulation Z: 12 CFR Part 1026 (Truth in Lending).
- CFPB Loan Estimate explanation: Understand your Loan Estimate.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.