Line of Credit Fees, Explained Honestly

The advertised rate on a line of credit rarely tells the whole story. Fee structures vary a lot between lenders, and the only way to actually compare two offers is to know which fees might apply to yours and how they stack up in practice.

Draw fees

Some lenders charge a small fee every time you pull funds from your line — sometimes a flat dollar amount, sometimes a small percentage of the draw. If you plan to draw frequently in smaller amounts, a draw fee structure matters more to your total cost than it would if you draw rarely in larger chunks. Ask directly whether draws carry a fee and how it's calculated before you assume the stated rate is the whole cost.

Maintenance and inactivity fees

A maintenance fee keeps the line active whether or not you're using it — essentially a cost of having the facility available. An inactivity fee is a variation of the same idea, charged specifically when a line sits undrawn for an extended stretch. If you intend to hold a line mainly as a backup buffer rather than a tool you draw on regularly, these are exactly the fees to ask about upfront, since they change the math on keeping unused capacity around.

Origination fees on some products

An origination fee is charged when the line is first set up, and it typically comes out of the funds at closing rather than as a separate bill. Not every line-of-credit product carries one, and the amount varies. It's a one-time cost rather than a recurring one, but it still affects how much capital you actually receive relative to your approved limit.

How to actually read a fee schedule

A fee schedule is usually a short table, but it's worth reading line by line rather than skimming for the interest rate. Look at what triggers each fee, how it's calculated (flat dollar amount versus a percentage), and how often it can apply. Two lines with the same headline rate can end up with very different total costs once fees are factored in over a year of typical use.

Questions worth asking before you sign

• —Is there a fee every time I draw, and how is it calculated?
• —Is there a maintenance or inactivity fee, and what triggers it?
• —Is there an origination fee, and is it deducted from the funds I receive?
• —Are there any fees for paying down or paying off my balance early?
• —Can I get the full fee schedule in writing before I accept an offer?

Fee structures vary by lender and by product — the specific fees, if any, that apply to your line will be disclosed in your offer terms before you accept.