In the Truth in Lending Act's credit-card rules, an annual fee is "any annual or other periodic fee that may be imposed for the issuance or availability of a credit or charge card, including any fee based on account activity or inactivity."
An annual fee is a recurring yearly charge associated with maintaining access to a credit product, such as some credit cards or lines of credit. It is billed for keeping the account open and available rather than for borrowing a specific amount, and it is typically disclosed in the account terms before the account is opened. Not all credit products carry an annual fee, and the amount varies by issuer and product. An annual fee is separate from interest, which is charged on balances carried, and from transaction-based charges such as a cash advance fee. Installment loans, which are repaid over a fixed term, do not usually carry an annual fee.
Annual fees are most often found on credit cards and some lines of credit, where they pay for keeping the account open and, on some cards, for rewards or other features. The fee is usually billed once a year, often around the account's anniversary, whether or not the account is used.
Federal rules require credit card issuers to disclose any annual fee in the account-opening table before the account is opened, and to give advance notice of certain fee increases. Some issuers waive the fee for the first year, and the account terms say when it starts and how it is billed.
Because an annual fee is charged for access rather than use, it is worth weighing against how the account will actually be used. A card carried mainly for emergencies may never earn back its fee through rewards, while one used heavily might. The fee is also separate from interest, so a cardholder who pays in full each statement can still owe the annual fee.
An example
A consumer compares two credit cards. One has no annual fee; the other charges a yearly fee but offers rewards. The consumer estimates how much would actually be spent on the card in a year and whether the rewards would cover the fee. Because the fee is charged even in a year with no purchases, the consumer also considers how often the card would really be used.
Common misconceptions
Myth: An annual fee is charged only if you use the account.
In fact: Annual fees are typically billed for keeping the account open, whether or not it is used.
Myth: Closing a card is the only way to avoid an annual fee.
In fact: Some issuers waive the fee, offer a no-fee version of the card or let the account be converted. The issuer can explain the options.
Myth: An annual fee is part of the interest rate.
In fact: It is a separate charge. Interest applies to balances carried, while the annual fee applies to keeping the account available.
What to check
- Whether an annual fee applies, and when it is first billed.
- Whether the fee is waived for a first period.
- What the fee pays for, such as rewards or other features.
- How much notice the issuer must give before raising it.
How this applies at Desert Rock Capital
A Desert Rock Capital loan is an installment loan, not an open account: if you are approved, you receive one amount from $100 to $3,000 and repay it in fixed biweekly payments on a set schedule. Every charge that applies is disclosed in the loan agreement before you sign anything, along with each payment and the total cost.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.