What is Annual Fee? What are its uses?

Annual fee

Annual fee refers to a fee paid to the lender or credit provider for providing credit service. The credit card companies in particular levy annual fee each year. They charge indicating the right to possess and use the card. This will be included in the bill or customer’s monthly statement. This fee is much applicable to other open-end credits like credit cards such as home equity lines of credit etc .

Annual fees should also be included while calculating the effective interest rate. Credit cards generally charge annual fees from $10 to $ 75. The higher annual fee is charged by reward cards. The line of credit fees are often charged in the form of points. 1% of the line of credit refers to one point. But many credit cards do not charge any annual fee.

If a fee for the credit is charged for one year or if the credit cost is expressed as yearly rate, then it is called Annual Percentage Rate (APR). It is the simple interest rate along with other finance charges.