The establishment fee covers the lender’s cost of setting up your loan: assessing the application, running the checks and preparing the contract. In NZ consumer lending it is typically a fixed dollar amount, and it is usually financed into the loan, which means it is added to your balance and accrues interest with everything else.
Two things to check on any offer. First, the amount in dollars, which must be disclosed before you are bound. Second, whether it is deducted from what you receive or added to what you repay; the difference decides whether a “$20,000 loan” puts $20,000 in your hand.
Under the CCCFA, credit fees are supposed to be reasonable, reflecting the lender’s actual costs. A fee dramatically out of line with the market is a reason to ask questions, and consumer advice sites regularly warn about establishment fees in the hundreds of dollars on small loans.
One fee that should never exist: anything you are asked to pay up front, before a loan is paid out, to “secure” or “release” it. That is the signature of an advance-fee scam, not an establishment fee.