Applying for a loan of any type may come with a loan application fee. A loan application fee is a one-time charge by lenders for submitting a loan application.
If you are charged a loan application fee, it usually is paid when you apply and may be nonrefundable—even if your application is denied. Not all lenders require this fee, and shopping around can help you find lenders that don't charge you upfront to apply.
If you're ready to take out a loan, find out how loan application fees work, how they compare to loan origination fees and when you may not be charged a fee at all.
How Loan Application Fees Work
Loan fees may be charged on many different types of loans, such as mortgages, personal loans, car loans, some private student loans and small business loans.
Lenders may charge an application fee (and other loan fees) to cover the costs to process, submit, underwrite and review your loan application. The fee must be fully disclosed by the lender when you apply and might be waived if you have a strong case to negotiate with your lender, such as if you have excellent credit.
The loan application fee can be as much as $500 and may be taken out of the loan amount when disbursed. If you are working through an intermediary, such as a mortgage broker, you can expect application fees to be on the higher end of the spectrum.
When getting a mortgage, you may have to pay several application fees, one or more of which may also be included in your loan origination fee (check with your lender to ensure you're not charged twice). It's possible to also pay an application fee when applying for private mortgage insurance (PMI), which may be required if you have less than a 20% downpayment.
Many of the top online personal loan lenders don't charge application fees. However, they may charge origination fees, which can be costly.
Loan Application Fee vs. Loan Origination Fee
Lenders may charge a variety of fees before disbursing a loan. Sometimes a lender will lump together different fees, so it's important to know what your lender charges to help you decide how much you can afford.
Two of the most common fees are origination fees and application fees.
Loan Application Fee
An application fee is used to recover some of the administrative costs of processing your loan application. On a mortgage loan, a lender can also charge a fee to collect your credit report as part of the application process. Because application fees are often nonrefundable, even if you're denied the loan, they do pose some risk to borrowers with poor credit or low income.
The application fee is typically a flat amount, regardless of how much or how little you're looking to borrow.
Loan Origination Fee
A loan origination fee is charged by a lender for making a loan. This fee may include underwriting the loan, processing the application, funding the loan and other administrative fees. It may also include application and underwriting fees.
Mortgages, auto loans, personal loans and student loans often have origination fees that may be due upfront as part of your loan closing costs. The origination fee might also be deducted from the amount of money you receive or rolled into the loan balance and paid over time.
A loan origination fee is usually a percentage of the amount you're borrowing, and may be as low as 0.5% or as much as 8% depending on the type of loan and your credit score.
The Bottom Line
A loan application fee is sometimes charged when applying for a loan. Avoiding loan application fees altogether may be possible by shopping around with different lenders. If you have a long-standing relationship with your banker or a high credit score, you may also be able to avoid paying this fee.
Check your Experian credit report and FICO® Score☉ for free to see where you stand before you apply, and take steps to improve your credit if necessary. Doing so can save you on fees and other loan costs, which can add up to thousands of dollars over the life of a loan.