Question

What is a car loan origination fee?

Origination fees are common for all types of loans - mortgage, auto, personal - and are generally paid at the time of accepting the loan.

These are essentially a lender’s commission for processing and underwriting your loan application. These fees can either be charged upfront as part of loan closing cost, deducted from the total amount, or can be rolled into the loan amount.

Most of the time you can choose how to handle loan origination fees. But it also depends on the lender and the type of loan. Some lenders may also offer credits to offset origination fees in exchange for a higher interest rate, and you should always look at how the car loan origination fees compare to the interest rate you get.

A lower origination fee can sure look tempting on the offer document, but if you still have a high APR (interest rate+ fees) despite the origination fees being low, then it is a problem. Yes, you would be paying low upfront but more over the life of the loan. It’s better if you go for a low APR loan even if it has slightly higher origination fees, as it will help you save thousands in the long run.