An application fee is a charge some lenders apply to process and review a loan or credit application. It is generally paid at the time of applying and may be charged whether or not the application is approved.
An application fee covers a lender's cost of accepting and evaluating a request for credit, which can include verifying information and reviewing the applicant's profile. It is typically a flat amount disclosed before you apply. Depending on the lender and product, an application fee may be separate from an origination fee, which is charged for processing and funding an approved loan, or it may be combined with other upfront charges. In some cases the fee is nonrefundable even if the application is declined, while in others it is waived or credited if the loan is funded. Whether an application fee applies is stated in the lender's fee disclosure.
An application fee is paid to be considered, not to receive money, which is what separates it from charges tied to an approved loan. Because it may be collected even when the application is declined, it is worth confirming before applying whether one applies and whether it is refundable.
Under the Truth in Lending Act, an application fee charged to all applicants, whether or not credit is extended, is generally not treated as part of the finance charge. That means it may not show up in the finance charge on the disclosure, so it is worth adding in separately when comparing what different lenders would cost in total.
Whether any charge applies just to apply varies by lender and by product. A lender should be able to say in advance, in writing, whether anything is charged to apply and whether it is refunded if the application is declined or withdrawn. Asking before applying avoids paying for a review that cannot be undone.
An example
A borrower applies to two lenders. One asks for a nonrefundable application fee before reviewing anything; the other does not charge to apply. The first lender declines the application, and the fee is not returned. Before applying anywhere else, the borrower asks each lender up front whether there is a charge just to be considered.
Common misconceptions
Myth: An application fee is the same as an origination fee.
In fact: An application fee is charged for reviewing a request and may apply even if you are declined. An origination fee is tied to processing and funding an approved loan.
Myth: Application fees always show up in the finance charge.
In fact: A fee charged to every applicant regardless of approval is generally excluded from the finance charge, so it may need to be added separately when comparing costs.
Myth: Paying an application fee improves your chances of approval.
In fact: The fee pays for processing the request. The decision still depends on the lender's review of the application.
What to check
- Whether any charge applies just to apply.
- Whether that charge is refundable if the application is declined.
- Whether it is credited toward the loan if the loan is made.
- Whether it is included in the finance charge or listed separately.
How this applies at Desert Rock Capital
At Desert Rock Capital, starting the application online takes a few minutes and there is no credit check to begin. Every charge that applies to a loan is set out in the loan agreement, which you see in writing before you sign anything, and a clear decision usually comes in about 30 minutes during business hours.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.