Arrangement fees can be genuine, but some are charged by fraudsters who claim to be able to find credit for you. Generally, if you are asked to pay an arrangement fee upfront, think really hard. Most arrangement fees are deducted from the loan or mortgage itself, and this makes sure that you get what you paid for.
Expect to pay an arrangement fee for fixed rate mortgages, for business loans and for some forms of car finance. The arrangement fee is intended to cover the administrative costs of setting up the credit facility, and may vary from a few hundred pounds to a set percentage of the loan itself.
The Consumer Credit Act requires arrangement fees to be included in the first year ‘total cost of credit’ that in turn is factored in to the calculation of Annual Percentage Rates (APR). Because arrangement fees are usually one-off payments, taken out at the start, the APR quoted on a loan that attracts an arrangement fee is often much higher than the actual cost of credit over all subsequent years of the loan’s term.
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