When you are out to shop for a digital app loan or any other type, your biggest concern is likely the interest rate you'll pay. But there is another cost you should keep in mind when choosing a lender - the loan origination fee.
What is Loan Origination Fees?
A loan origination fee is an upfront fee charged by a lender to cover miscellaneous costs of making a loan. These might include preparing loan documents, processing your loan application and underwriting the loan, that is, checking your credit to make sure you qualify for the loan.
Some lenders break out fees for preparation, processing and underwriting separately; others lump them all into the origination fee.
Digital app loans which are classified as personal loans will often have origination fees. Depending on the digital lender, origination fees may be deducted upfront from your loan amount or rolled into the total loan balance to be paid off over time.
Origination fees are set before you even take the loan and may vary widely again depending on the digital lender and your creditworthiness.
For instance, the OPesa loan app has a one-time service fee charge pegged between Sh100 and Sh600 while the OKash app has its origination fees ranging between Sh50 and Sh600.
While a lower origination fee may sound like a good deal, it's not always your best option. Because origination fees help compensate lenders for making the loan, you might find that a loan with a lower origination fee makes up for it with a higher interest rate.
How Does Your Creditworthiness Affect Your Origination Fees?
Having a good credit score can make it easier to get approved for all types of loans. It may also spur lenders to offer you a lower origination fee to bring you on board of their clientele base.
Origination fees are set by lenders and there's no rule that dictates how much they should charge. However, legitimate digital lenders will disclose their fees upfront in the "About the app" page on Playstore.