A maintenance or servicing fee is a charge for the ongoing administration of a loan or account, such as managing payments and statements. It may be billed periodically or as part of the cost of the credit.
A maintenance fee, sometimes called a servicing or account-keeping fee, covers a lender's or servicer's ongoing cost of administering an account, which can include processing payments, sending statements, and maintaining records over the life of the loan. It may be charged monthly, annually, or built into the cost of credit, and not every loan or account includes one. Loan servicing refers to this day-to-day management, and the company performing it, the servicer, is not always the original lender, since servicing rights can be transferred. Where a maintenance or servicing fee applies, its amount and frequency are stated in the loan or account agreement.
Servicing is the ongoing work of running an account after it is opened: collecting payments, keeping records, sending statements and answering questions. Some lenders and servicers charge for this work directly, while others build the cost into the rate. Where a separate fee exists, the agreement states how often it is charged and how it is calculated.
Because a recurring fee is charged whether or not the balance is changing, it can matter more on a small balance than on a large one. When comparing offers, the total of payments in the disclosure shows the combined effect of interest and required charges in one figure.
Maintenance fees are also common outside lending, for example on checking accounts, where a recurring service charge may be waived when a minimum balance or a direct deposit is maintained. The same idea applies to some credit accounts: the terms say what the fee is for and whether anything reduces or removes it.
An example
A borrower compares two accounts that offer similar rates. One charges a periodic servicing fee; the other has none. Over the life of the account, the recurring fee adds to the total paid even though the rates look alike. The borrower uses the total cost figures in each disclosure, not just the rate, to decide which account costs less.
Common misconceptions
Myth: A maintenance fee is a penalty for doing something wrong.
In fact: It is charged for keeping the account administered, not for a missed payment. Late charges and returned-payment fees are separate.
Myth: Servicing costs always appear as a separate fee.
In fact: Some lenders charge for servicing separately, while others include the cost in the rate. The agreement shows which approach applies.
Myth: A small recurring fee makes little difference.
In fact: Charged repeatedly over the life of an account, a small fee can add up, which is why the total of payments is the figure to compare.
What to check
- Whether a recurring servicing or maintenance fee applies.
- How often it is charged, and whether it continues while the balance is paid down.
- Whether it is included in the finance charge.
- The total of payments with all required charges included.
How this applies at Desert Rock Capital
At Desert Rock Capital, the amount, each biweekly payment and the total cost of the loan are disclosed in writing before you sign anything, so the loan agreement shows every charge that applies. Payments are voluntary payments toward your loan account, and the loan is fully amortized with no balloon payment.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.