First, you need to know what a credit utilization fee is. It is nothing more than a fee that may be charged on a secured loan or a fee that may be charged on a revolving line of credit when usage is above or below a certain amount. The borrower is usually obligated to pay such a fee and it will be based on the outstanding principal balance or the amount of credit used.
A utilization fee may also be known as a usage fee. If you have a revolving line of credit, you will probably be charged this fee when utilization is above or below a certain minimum.
An example of this might be this:
If you have a secured loan, you may have to pay a utilization fee. This fee may be charged on the outstanding principal of the loan.
Generally a secured loan is backed by a third party to help strengthen the borrower’s ability to repay the loan.
You could say that this is a type of guarantee for the business, a token that the borrower will honor their commitment once they have formed the requested loan.
Not all lenders charge utilization fees, on the other hand, those that do will outline the details in the loan terms. The lender and the type of loan or line of credit will determine how much the utilization fee will be and when you may have to pay it. You can pay the fee on an annual or monthly basis, and it will be based on the percentage of the line of credit you draw down or the outstanding loan principal balance.
One very important fact you should be clear about is that the terms utilization fee and credit utilization ratio are two different things. A utilization rate is an actual rate that can be paid on a line of credit or loan. On the other hand, credit utilization is the amount of credit you use compared to your total available credit.
If you have a revolving line of credit or loan and the terms include a utilization fee, you will be required to pay it if it is activated or when it expires. If you do not activate the fee, you may not have to pay it. If you keep your usage low, you can probably avoid this fee.
If you cannot afford to pay the fee, you should contact the lender and work out a way to work something out. Many people turn a blind eye and in the end it only ends up hurting your credit, as this information will be reflected in your credit history.
