Sometimes known as a lender fee, a loan fee is any type of charge or cost that is connected with the evaluation, approval and management of a loan. Lenders sometimes charge fees of this type on the front end as a means of offsetting the costs of processing a loan application. A lender fee may also be an ongoing annual charge that is assessed at various points during the life of the loan.
The main function of a loan fee is to compensate a lender for some type of support he or she is extending to an applicant or a current debtor. During the application period, the lender may charge what is known as a loan origination or application or evaluation fee. This is simply a loan fee that helps to defray the costs of processing and considering the loan application. In some cases, lenders will waive fees of this type as a means of encouraging consumers to submit applications without incurring any type of financial obligation.
More commonly, a loan fee of some type is charged when the loan is approved. This is sometimes known as a processing fee, and is aimed at covering the costs associated with preparing the loan documents and processing the payment of the loan itself once all the paperwork is in order. As with the application fee, this type of charge is sometimes waived as an incentive to applicants to accept the terms of the loan and make a commitment to the lender.
Many loans also carry some type of loan fee that has to do with the day to day management of the debt obligation. This is particularly true when the loan is in the form of a line of credit. The lender may assess what is known as a commitment fee, which has to do with the maintenance of the portion of that line of credit that the debtor is currently not using. A similar charge, known as a utilization fee, may be applied to the portion of the credit line that is currently in active use by the client. Fees of this type may be calculated on an annual basis or more frequently, depending on current financial regulations in the jurisdiction in which the loan or credit line is extended.
It is sometimes possible to avoid a loan fee, especially in a competitive market. For example, if a lender is very interested in granting a loan to a given applicant, but that applicant has received a better deal from a competing bank or other type of lending institution, the lender may offer to waive one or more fees in order to earn the client’s business. When such offers are made, applicants should read through the final draft of the loan contract, and make sure that the waivers of specific fees are noted in the terms, and also that the amounts on any remaining fees have not been increased to offset the purported savings.