What is an arrangement fee and when do I pay it?

2 min read

One-offSetup charge

% of loanCommon basis

On drawdownUsual timing

True costInclude it

What the fee is for

An arrangement fee (sometimes a facility or setup fee) covers the lender's cost of underwriting and putting the facility in place. It is commonly a percentage of the amount borrowed, though some lenders charge a flat sum or none at all. It is separate from interest and is a real part of what borrowing costs you.

When and how you pay it

Most arrangement fees are taken on drawdown, either deducted from the advance or added to the loan balance so you repay it over the term. Adding it to the loan spreads the cost but means you pay interest on the fee too. Check the facility letter for exactly how yours is handled.

Counting it in the true cost

Because the fee affects the total repayable, always include it when comparing offers — a lower rate with a high fee can cost more than a higher rate with none. Work out the full figure on the repayment calculator, and see the true-cost guide for the method. This is central to choosing between offers.

Frequently asked questions

Is an arrangement fee refundable if I repay early?

Usually not — it is a setup charge, earned when the facility is arranged, so early repayment does not recover it. Early repayment may save interest, but the arrangement fee is generally sunk.

Should I add the fee to the loan or pay it upfront?

Paying upfront avoids interest on the fee but uses cash now; adding it spreads the cost at the price of a little more interest. Choose based on whether preserving cash or minimising total cost matters more.