How to use the loan origination fee calculator
- Choose whether you know the loan amount or the cash you need after the fee.
- Enter the origination fee as a percent of the loan and, if there is one, a flat fee.
- Optionally enter the interest rate and term to see the monthly payment and a rate that includes the fee.
- Read the fee, the money you receive and, in the second mode, the loan amount to request.
Formula
Fee = loan x fee percent / 100 + flat fee
Money received = loan - fee
Loan needed = (cash needed + flat fee) / (1 - fee percent / 100), rounded up to the cent
Rate that includes the fee = the yearly rate at which the money received grows to the payments
The fee is assumed to come out of the loan before you get the money, and interest is charged on the full loan.
A 2% fee on a $20,000 loan
Two percent of $20,000 is $400, so you receive $19,600. If you actually need $20,000 in hand, the loan has to be larger: ($20,000) / (1 - 0.02) = $20,408.16, which carries a fee of $408.16 and leaves $20,000.00.
With an 8% rate over 60 months, the $20,000 loan has a payment of $405.53 and $4,331.62 of interest. Add the $400 fee and the cost is $4,731.62. Because you received only $19,600, the rate that includes the fee is 8.859% rather than 8%.
Why you may need to borrow more than you need
When the fee comes out of the loan, borrowing exactly the cash you need leaves you short. Dividing by one minus the fee percent finds the larger loan that nets your target. The difference is small for a low fee and grows as the fee rises, and you also pay interest on the extra.
The fee is part of the real cost of credit. To see how a fee changes a full loan, compare the result with the APR calculator, and for mortgage-style costs see the mortgage points calculator.
What the rate with the fee means
The rate with the fee answers one question: if you really received the money after the fee but repay the full loan, what yearly rate do you pay? It is higher than the interest rate, and the gap shrinks as the term gets longer. It is an estimate with monthly compounding, not the APR on a loan estimate.
Other costs such as appraisal, insurance or closing charges are not part of it. See the closing cost calculator for those.
Assumptions and limits
- The fee percent and flat fee are your inputs. Example values are not typical or required amounts.
- The fee is subtracted from the loan proceeds. If your lender adds it to the balance instead, the numbers differ.
- Interest is calculated on the full loan amount with monthly payments of equal size.
- No taxes, insurance, closing costs or prepayment penalties are included. This is not financial advice.
Frequently asked questions
How do I calculate an origination fee?
Multiply the loan amount by the fee percent and add any flat fee. Two percent of $20,000 is $400, and you receive $19,600.
How much should I borrow to receive a specific amount after the fee?
Divide the amount you need by one minus the fee percent written as a decimal. To receive $20,000 after a 2% fee, request $20,408.16.
Is the origination fee the same as the interest?
No. The fee is charged once at the start and interest is charged over time. Together they make up the cost of borrowing.
Why is the rate with the fee higher than my interest rate?
You pay interest on the whole loan but receive less than the whole loan, so the effective yearly cost on the money you actually got is higher.