Finance Charge

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Definition of 'Finance Charge'

A finance charge is the cost of borrowing money, expressed as a percentage of the principal amount. It is typically calculated as the interest rate multiplied by the amount of money borrowed and the number of days the loan is outstanding. Finance charges can be either fixed or variable, and they can be added to the principal amount of the loan or paid separately.

Fixed finance charges are the same for each payment period, regardless of the amount of money borrowed or the length of the loan. Variable finance charges can change from one payment period to the next, depending on the interest rate.

Finance charges are typically charged on loans, credit cards, and other forms of credit. They can also be charged on leases and other types of installment contracts.

The amount of finance charge that you will pay depends on a number of factors, including the interest rate, the amount of money borrowed, the length of the loan, and the payment frequency.

It is important to understand the finance charge when you are considering taking out a loan or using a credit card. Finance charges can add up quickly, and they can make it difficult to repay your debt.

Here are some tips for avoiding high finance charges:

* Shop around for the best interest rate.
* Compare the finance charges on different loans and credit cards.
* Make sure you understand the terms of the loan or credit card agreement.
* Only borrow what you need.
* Make your payments on time and in full.

By following these tips, you can help to keep your finance charges low and avoid getting into debt.

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