Borrowing guide - loan charges

UK loan charges & fees refer to normal costs associated with the administration of an UK loan. These may be either one-off fees, such as set-up or recurring fees. For example, it would be normal for a personal loan to have a set-up fee, without a recurring fee.

On the other hand, it would be normal for an overdraft to have a recurring monthly fee (usually applied if you actually use the facility during that particular period), but no set-up fee.

Another example is account closing charges, often associated with morgages, and levied due to the heavier administrative burden when closing these accounts.

Penalties are fees that are applied by the lender if you breach the terms of the agreement. For example, if you borrow on a credit card and fail to make the minimum monthly payment, you will be charged a penalty. If you overdraw your current account by a greater amount than the agreement value, you will most likely be charged a penalty.

Although penalties are a legitimate charge, they can be more difficult to analyse before you borrow. This is because they only arise in certain unintended or unplanned-for situations.

Also, banks do not advertise their penalties - you have to ask each bank individually for this information.

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