Most borrowers when looking for a loan will look at the interest rate.  This is sensible as the interest is a major cost of the loan.  However there are other things that should be considered when looking at the cost of a loan.  This includes the fees that can be charged on the loan.

There are a number of fees that are charged on a loan.  There are arrangement fees, holding fees and exit fees.  There are also a number of penalties that are labelled as fees.

Arrangement fees are fees that are charged when the loan is first set up.  This covers various things for the loan including the administration and the credit checks.  The arrangement fees can vary quite widely, but are usually charged as a dollar amount no matter what the size of the loan and there are few percentage type fees.  Most arrangement fees are added on to the loan and the interest is therefore charged to the arrangement fee as well as the principal of the loan. 

Arrangement fees can be higher when the loan is secured against another asset, which can mean that a higher amount is advanced and a lower interest rate is asked for.  These can include houses and cars and the arrangement fees will cover any valuations or establishing legal title to the asset.  There are also extra administrative charges as the security of the loan takes more time and paper work than an unsecured loan takes. 

Secured loans can have a lower interest rate than an unsecured loan, but the higher arrangement fees can take away a large amount of this advantage. With smaller loans this can sometimes reverse the perceived advantage.

Holding fees, or administration fees, are fees that are charged on a monthly basis.  These also tend to be charged on a monthly basis as a dollar amount rather than as a proportion of the outstanding loan.  Holding fees are designed to cover the administration of a loan.  In many larger loans they may not be charged.  It is quite important when comparing two loans to also ensure that the holding fees are of the same amount.  If there is a difference then this can narrow the different interest rates.

Exit fees are charged at the end of a loan if the loan is paid off early.  These are not always charged and they may sometimes be charged in the first couple of years of the loan.