Some lenders charge a loan application fee when a borrower applies for a loan. It’s a way for lenders to make the transaction more profitable and to cover processing costs. This fee is usually nonrefundable, but borrowers should know that it isn’t necessarily set in stone. Loan application fees may be negotiable, and many lenders do not charge application fees at all. In fact, some consumer advocacy groups even categorize loan application fees as “junk fees” to be avoided.
Find out what you need to know about loan application fees, how they work, how they compare with origination fees, and what they might cost you.
Definition and Example of a Loan Application Fee
A loan application fee can be charged on all types of loans, from personal loans to auto loans and mortgages. However, there are many lenders that do not charge application fees, so it pays to shop around. If you are in a good borrowing position and have a strong credit score, you should be able to find a lender that does not tack on sneaky charges such as loan application fees.
- Alternate name: A loan application fee may sometimes be lumped into “loan origination fees” or “loan processing fees.”
As a borrower, you might decide that paying a loan application fee is worth it if you find the rest of the loan terms favorable, or have a better chance of qualifying with that particular lender if you accept the fee.
How Do Loan Application Fees Work?
Loan application fees, when charged by a legitimate lender, are flat-rate costs that should be fully disclosed. Once a borrower submits their application, they may have to pay the application fee upfront. Or, in some cases, such as with a mortgage, the borrower may be responsible for the loan application fee (along with other costs) at closing.
Lenders are legally allowed to charge application fees, but be cautious of any companies that make guarantees or promises about their loan products without reviewing your credit history first, or those that demand upfront payments. Those could be scams.
Don’t pay any loan application fees until you’ve received a loan estimate. That way, you’ll have a good understanding of what the loan will entail and your chances of approval before you pay up.
Loan Application Fee vs. Loan Origination Fee
When working with a lender, you may also hear the term “loan origination fee.” This refers to an amount you are charged for the loan processing. Sometimes, a loan application fee may be bundled into the total cost of the loan origination fee, and you’ll see it mentioned in an itemized list; in other cases, the fees may be charged separately. Here are some key differences between the two fees.
|Loan Application Fee||Loan Origination Fee|
|Charged before loan approval||Charged at loan closing|
|Small flat fee||Usually a percentage of the loan amount|
|Many lenders do not charge this fee||Fees vary by lender|
|May be negotiable||May be negotiable|
Loan application fees, along with origination fees, may be negotiable. Speak to your lender to see if there is an opportunity to lower your costs.
If you’re working with a mortgage broker, make sure you’re not being double-charged for application fees by both the broker and the lender; there should only be one application fee, and it should be fully disclosed.
How Much Do Loan Application Fees Cost?
Loan application fees vary, and can depend on the type of loan. For example, a mortgage or refinance loan application fee could be as much as $500 or more. For a smaller personal or auto loan, a typical loan application fee might be around $25 to $50.
Don’t forget that you may have some room to negotiate with the lender. If a fee seems too high or unreasonable, trust your gut and keep shopping. It could be a red flag that the loan product or lender may not be the most consumer-friendly.
- Loan application fees are flat costs borrowers sometimes have to pay when they apply for any type of loan. They can be charged separately, or sometimes placed under the umbrella of loan origination or loan processing fees.
- Not all lenders charge a loan application fee; if they do, they must disclose it upfront.
- Loan application fees are usually non-refundable, but you sometimes are able to get the lender to waive the fee if you are in a strong negotiating position.
- Be mindful of predatory lenders that charge high loan application fees or make promises or guarantees.
Federal Trade Commission. “What To Know About Advance-Fee Loans.” Accessed Dec. 15, 2021.
New York State Government. “Industry Letters - Residential Mortgage Lending Fees.” Accessed Dec. 15, 2021.
North Jersey Federal Credit Union. “Consumer Fee Schedule.” Accessed Dec. 15, 2021.
Access Credit Union. “Online Loan Application.” Accessed Dec. 15, 2021.