Set up and arrangement fees are the fees that credit card providers can charge new borrowers for the use of the cards. This tends to happen particularly with low interest and low annual fee cards as many credit card providers charge the cost through the annual interest rate and the annual credit card fee.
Arrangement fees cover various costs for a credit card provider. This includes credit verification and the various administrative costs of setting up a card. With secured credit cards this can also include the cost of assessing the value of the asset that is put up as security against the card debt.
Many credit cards do not explicitly charge an arrangement or set up fee. The fee tends to be charged over the life of a card as the profits from the card holder are seen to justify this. However this does not tend to be the case for cards with low interest rates either on purchases or balance transfers as there is a reasonable amount of turnover with the cards.
In some cases this is taken further with an offer of no annual fee charged in the first year. As with the lack of a set up charge, the lack of the first year’s annual fee will be made back through the interest rate and the annual credit card fee.
Balance transfer fees are also charged by many credit card companies. These fees are a proportion of the balance that is being transferred over, usually about 1% or 2% of the balance transfer. This will not be called a set up fee. This will tend to be added to the balance of the card. This can reduce the benefit of a card’s advertised zero percent balance transfer interest rate, particularly if the interest-free period is for a short period of time.
Set up fees have to be advertised by a credit card in its advertising, and can be challenged if they are not. However they do tend to be in the smaller print of the offer. They are often not noticed as the fee is charged on the card.
Existing customers of a bank or credit union who holds another financial account, for example a loan or a savings account, can often find that arrangement fees can be waived or reduced due to the lower expense of taking the borrower on.
