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Arrangement Fee

An arrangement fee is a fee charged by a lender or financial institution to cover the costs associated with evaluating and setting up a loan.

Arrangement fee is also called booking fee or completion fee. In the process of taking a loan, the borrower pays an arrangement fee which is usually set to cover administration charges.

This fee could be added to the loan balance and paid off over the life of the loan, along with the interest and principal payments.

The exact fee amount varies depending on the type of loan, the lender, and the borrower’s creditworthiness.

Arrangement Fee vs Interest Rate

The interest rate is calculated as the profit gained by the lender over the loan given out. On most loans, the interest is paid in addition to the principal across the repayment period. 

For arrangement fee, it is paid to the concerned party to cover administration charges. This party could be the lender directly, an agent, a society or a bank. In this case, they are referred to as arrangers and this percentage of the loan amount belongs solely to them.

What is the Price of an Arrangement Fee?

There is no fixed price for the arrangement fee. The fees are, however, usually in a range of 0 – 3% of the mortgage or loan amount. This charge highly depends on the risk associated with the transaction. When a higher risk is perceived, there is an increased tendency for a higher arrangement fee charge.

When is an Arrangement Fee Charged?

The pattern with which an arrangement fee is charged is largely relative. For some arrangers and lenders, the fees can be paid when the loan has been fully completed. Here, it is called a completion fee. 

In some cases, the fee is charged immediately after the loan has been approved. In others, it is added to the total loan amount payable by the borrower.

Key Points

  • An arrangement fee is paid by the borrower to the lender or arranger to cover the administrative process of setting up a loan.
  • Arrangement fees are completely different from interest rates on loans.
  • There is no fixed price for arrangement fee. It depends on the loan amount and perceived risk involved.

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