Utilization Fee
What Is a Utilization Fee?
A utilization fee is an ordinary, periodic fee assessed by a lender against a borrower. The fee depends on the amount of credit really involved by a borrower in a revolving credit extension or term loan.
Utilization Fee Explained
The fee depends on the real amount of funds that is utilized from a credit extension or term loan. The borrower must pay the utilization fee, notwithstanding different fees, as part of the terms of the credit extension or term loan. Utilization fees might be charged by lenders particularly when borrowers access large divides of their credit extension or loan due to the capital demands such activity puts on the borrower.
If all borrowers used almost the full amount of the balance accessible to them, lenders could be stressed to reliably fulfill need. By charging utilization fees, a lender can make floods of capital to support their operations, while likewise giving borrowers an incentive to reduce or kill their outstanding balances to try not to pay these costs.
How Utilization Fees Are Applied
The terms of a utilization fee can change by lender and the type of credit or loan being utilized. For instance, a utilization fee clause might require the borrower to pay an amount in light of the average aggregate outstanding sum in the event that that outstanding balance is greater than a certain percentage of the daily average of the total commitment.
A few clauses set the threshold for the outstanding balance at 33.3% of the total commitment, others might set it at half before utilization fees are set off. Utilization fees could be charged against the outstanding balance no matter what the percentage compared with the full scope of the credit line or loan.
Utilization fees and their terms might change by the type of credit or loan being utilized and by the lender.
The payment could be annual, however the fee could be founded on a quarterly or even daily assessment of the outstanding amount. The fee may be calculated by charging the borrower for a stated interval that the outstanding balance was larger than a set threshold compared with the whole credit extension.
So assuming a borrower has a $2 million credit extension with a utilization fee clause with a half threshold, and for three days the outstanding balance surpassed $1 million, they would owe a utilization fee in light of that period. Assuming that the outstanding balance stayed below that threshold, the borrower probably won't owe a utilization fee, essentially at that equivalent rate.
Features
- A utilization fee is a periodic fee routinely assessed against a borrower by a lender of a term loan or a revolving credit extension.
- Utilization fees are charged by lenders frequently when borrowers tap out large divides of their credit extension or loan.
- The amount of the fee depends on the amount of credit (or funds) borrowed.
- A utilization fee is part of the terms of the loan as issued by the creditor or lender.
