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When shopping for a loan, you may notice that some lenders charge an application fee, which increases the total amount you have to pay. If the lender charges an application fee (not all do), the amount you may have to pay varies by institution and loan type. Read on to learn more about loan application fees, how much they cost, how to avoid them and other loan fees you may be responsible for.
What Is a Loan Application Fee?
A loan application fee is a one-time upfront charge some lenders charge to help cover administrative costs associated with processing loan applications. They are usually a flat fee, not a percentage of the loan amount, regardless of how much you want to borrow.
Application fees are often nonrefundable—even if you aren't approved for the loan—but may be negotiable. Lenders may charge application fees for various types of loans, including mortgages, home equity loans, personal loans, car loans and small business loans.
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How Much Is a Loan Application Fee?
What you'll pay for a loan application fee varies based on the lender and loan type. For example, application fees for personal loans may be as little as $15 to $50, whereas the application fee for a mortgage may cost you more than $1,000. If your lender charges an application fee, they must disclose that information when you apply.
Types of Loan Fees
Lenders may charge various fees to help cover the cost of processing, underwriting and servicing loans. Common fees you may need to pay include:
- Origination fee: Lenders charge an origination fee if your application is approved. The lender might deduct the fee from the money you receive or add it to the amount you need to repay. Lenders commonly charge origination fees for mortgages, auto, personal and student loans. Fees typically range from 0.5% to 8% of the amount you borrow, depending on the loan type and your credit score.
- Credit report fee: When applying for a mortgage, the lender may charge a fee to check your credit reports as part of the application process. The cost is usually less than $30.
- Appraisal fee: If you're applying for a mortgage, home equity loan or HELOC, or refinancing your existing mortgage, the lender will likely order a home appraisal to determine the current market value of your property.
- Prepayment fee: Some lenders charge a prepayment fee if you pay off your loan early. If the lender charges a prepayment penalty, it will be explained in the terms and conditions of the loan, so be sure to review them carefully.
- Late fee: If you're late with a loan payment, your lender will likely charge a late fee. Your credit will likely take a hit if the payment is more than 30 days past due.
- Title and registration fees: If you take out an auto loan to finance the purchase of a vehicle, you must pay to have it titled and registered in your name before you can drive it off the lot. Fees vary by location.
Learn more >> How to Reduce Your Total Loan Cost
Loan Application Fee vs. Loan Origination Fee
Lenders may charge application and origination fees. Here's a breakdown of some key differences between the two.
| Loan Application Fee | Loan Origination Fee |
|---|---|
| Paid at time of application | Paid at closing |
| Less commonly charged by lenders | Commonly charged for certain types of loans |
| Flat rate | Percentage of loan amount |
| Single fee | May include multiple loan costs |
Frequently Asked Questions
Loan application fees are generally not tax deductible. However, depending on the loan type, you may be able to deduct other loan costs. For example, student loan interest and mortgage interest and points are often tax deductible.
Because tax laws can be complicated and frequently change, it's a good idea to talk to a tax professional if you have questions about what you can and can't deduct.
Mortgage lenders may charge an application fee that's included in the loan's origination fee. It helps cover the cost of processing and underwriting the mortgage. You can find the amount of the application, origination and other fees and expenses due at closing on the closing disclosure your lender provides. If you have questions about fees, ask your lender before closing to ensure you come to a settlement with enough cash.
Many lenders don't charge application fees for personal loans. Shopping around and comparing interest rates and loan terms is the best way to find a personal loan that doesn't have an application fee.
However, just because a lender doesn't charge an application fee doesn't mean they don't charge other fees that can increase your total cost. Many online personal loan lenders don't charge application fees, but they may charge origination fees, which can be costly.
Should I Pay a Loan Application Fee?
If you're applying for a mortgage, you'll probably have to pay an application fee; however, other loans often don't require it. Researching multiple lenders can help you avoid or minimize application and other fees that can increase the total cost of a loan.
Because application fees are generally nonrefundable, it's worth checking your credit scores—which you can do for free at Experian anytime—before applying for a loan that charges one. Checking your scores can help you determine the likelihood of your application being approved before paying a fee you may not get back.
If your credit needs some work, taking steps to improve it now, such as getting current on all your bills, paying down debt and applying for credit sparingly, may help you improve your chances of qualifying for a loan, getting lower interest rates and avoiding or minimizing fees in the future.