Find Out What a Car Loan Establishment Fee or Origination Fee is
It can feel as though there are endless new words and terminology used when looking for a car loan. But don’t panic, we can help understand these and answer any questions when you’re feeling uncertain.
You may have heard the term ‘establishment fee’ or ‘origination fee’ a few times in relation to something that a lender may charge you – but do you really understand what this refers to?
What is an establishment fee or origination fee?
It can be confusing as both of these terms are used to describe the same concept. This fee relates to a charge that some lender will make to cover the cost of setting up your car loan.
An establishment fee is a one off fee and is usually a set amount, agreed upon in the terms of the loan. We can advise you on whether your particular lender charges an origination fee and if so, what the amount of this is likely to be.
Establishment or origination fees are justified by the lender as a fee for processing your application; this inevitably includes tasks such as paperwork and credit checks. In addition to the interest that you will pay them on your loan, these fees are an additional way for the lender to cover the costs of lending money.
What can you expect to pay in an establishment fee?
Generally, these fees will be either a flat fee or a percentage of the total car loan. It’s common for establishment or origination fees to equate to approximately one or two per cent of the total loan amount.
It’s important that you’re aware of these fees when purchasing a car. It’s an additional cost that you’ll need to budget into your overall financing of the car. Be aware that on a $30,000 loan you could be paying close to $600 as an establishment fee.
Can you negotiate an establishment fee?
Many people object to paying an establishment or origination fee on a car loan as it can feel like a substantial amount of money – especially if yours is a smooth process and you have a good credit history.
It’s always worth speaking to your lender, or we can help you find the best loans for you, which may not have an establishment fee.
Are there any other fees connected with the start of a car loan?
It’s always best to be prepared for all costs involved in setting up a car loan. You don’t want to face unexpected outgoings when you’re already making a big purchase.
Some of the fees and costs you should be aware of, aside from an origination fee include:
- Bank processing fees depending on your bank
- Insurance set up
- Deposit amount if applicable
Speak to the experts
Some costs are inevitable when setting up a car loan, so it’s best to have a bit of money set aside for extras that you need to pay.
To avoid finding yourself facing unexpected costs, let us go through your loan process alongside you. We’ll make you aware of any upcoming fees and costs so that you can prepare for them financially and budget accordingly. Find out how we can help you with your car loan.