Let me tell you about the $800 that disappeared.
Around 2023, a client named Teresa was approved for a $25,000 personal loan at 8.9% APR. The monthly payment was $518. She was happy. Then I asked to see her closing disclosure. She emailed it over. Buried in the fees: an origination fee of $875.
"What's that?" she asked.
I told her: it's a fee for processing the loan. But here's the kicker — on a $25,000 loan, an $875 origination fee is around 3.5% of the loan amount. That's money she'd never see again. It came off the top. So instead of getting $25,000, she'd get around $24,125. But she'd still pay interest on the full $25,000.
She was furious.
I told Teresa to ask for a no-fee loan offer. The same lender came back with 10.2% APR and no origination fee. Her monthly payment went up to around $535 — $17 more per month. Over four years, that's around $816 in extra interest. That's actually cheaper than the $875 fee she would have paid upfront, especially if she planned to pay the loan off early.
She took the no-fee option. She paid off the loan in 18 months instead of four years. Total interest: around $1,100. If she'd taken the origination fee offer, she'd have paid $875 plus around $600 in interest. That's around $1,475 — more than the $1,100 she actually paid. So she saved around $375.
Origination fees aren't always bad. If you plan to keep the loan for a long time, a lower interest rate with a fee might be better. If you plan to pay it off quickly, a higher rate with no fee is usually better. The only way to know is to run the numbers.
But here's the part that bugs me: many lenders don't give you a choice. They just add the fee by default. You have to ask for a no-fee option. And most people don't ask because they don't know it exists.
Now you know.
I will keep posting updates on this. Check back soon.
P.S. Teresa later refinanced her loan at 6.8% with a credit union that had no origination fee. She sent me a photo of her zero balance letter. I printed it out and put it on my fridge for a month.