What is a personal loan origination fee—and how a good credit score can help you avoid this charge

Personal loans can seem almost too good to be true, which is why you need to look closely to see all the ways that lenders make a profit by charging borrowers a variety of fees.

Origination fees are perhaps the most upfront way that lenders earn money off your personal loans. An origination fee is a one-time cost your lender subtracts from the top of whatever amount they lend you to pay for administration and processing costs. Usually, the fees range between 1% and 5%, but sometimes you're charged as much as 10%, or even a flat rate.

Here's an example: If you took out a $15,000 loan that had a 5% origination fee, your lender would charge $750 upfront before even giving you the money. When the money is deposited into your account, you'd only get $14,250. However, you'd still owe back the full $15,000, plus interest.

Here's a breakdown of this hypothetical scenario:

• Total loan amount: $15,000
• Origination fee: $750
• Amount deposited to your bank account: $14,250
• Repayment term: 36 months
• Interest rate: 12.49%
• Total interest paid over life of the loan: $1,099.17
• Total lifetime cost of the loan (interest + origination fee): $1,849.17

Whenever possible, it's best to avoid origination fees. Maintaining a good to excellent credit score helps you qualify for loans that don't charge origination or administration fees. 

It's also important to do your research ahead of time. Don't just apply for the first loan you qualify for.

Select now offers a widget where you can put in your personal information and get matched with personal loan offers without damaging your credit score.

You can also opt to go to different lenders' websites and submit your information for prequalification. Lenders like LightStream have prequalification forms on their websites. So do some budgeting/credit monitoring websites like Mint or WalletHub. You can also visit a lending platform (such as Upstart or LendingTree) to view multiple offers at once.

When compiling our list of the best personal loans, Select looked at key factors like interest rates, fees, loan amounts and term lengths offered, plus other features including how your funds are distributed, autopay discounts, customer service and how fast you can get your funds.

None of the lenders on our list charge early payoff penalties or upfront fees for processing your loan.

(Read more about our methodology below.)

• Best overall: LightStream Personal Loans
• Best for refinancing high-interest debt: SoFi Personal Loans
• Best for smaller loans: PenFed Personal Loans
• Best for next-day funding: Discover Personal Loans

To determine which personal loans are the best, Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions, that come with no origination or signup fees, fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.

When narrowing down and ranking the best personal loans, we focused on the following features:

• No origination or signup fee: None of the lenders on our best-of list charge borrowers an upfront fee for processing your loan.
• Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan's term, which means your monthly payment won't vary, making your budget easier to plan.
• Flexible minimum and maximum loan amounts/terms: Each lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
• No early payoff penalties: The lenders on our list do not charge borrowers for paying off loans early.
• Streamlined application process: We considered whether lenders offered same-day approval decisions and a fast online application process. 
• Customer support: Every loan on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
• Fund disbursement: The loans on our list deliver funds promptly through either electronic wire transfer to your checking account or in the form of a paper check. Some lenders (which we noted) offer the ability to pay your creditors directly.
• Autopay discounts: We noted the lenders that reward you for enrolling in autopay by lowering your APR by 0.25% to 0.5%.
• Creditor payment limits and loan sizes: The above lenders provide loans in an array of sizes, from $500 to $100,000. Each lender advertises its respective payment limits and loan sizes, and completing a preapproval process can give you an idea of what your interest rate and monthly payment would be for such an amount.

After reviewing the above features, we sorted our recommendations by best for overall financing needs, debt consolidation and refinancing, small loans and next-day funding.

Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more. 

*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of 3 years would result in 36 monthly payments of $313.32.