Finance Charge
The total cost of borrowing, encompassing interest and fees.
Detailed Description
Finance Charge
What is a finance charge?
A finance charge is the cost of borrowing money, including all fees and interest incurred when taking out a loan or using credit.
How are finance charges calculated?
Finance charges are calculated based on the principal amount, interest rate, and duration of the loan, using methods like simple interest, compound interest, and average daily balance.
What types of finance charges exist?
Types of finance charges include interest charges, late fees, annual fees, transaction fees, and loan origination fees.
Why is understanding finance charges important?
Understanding finance charges helps borrowers assess the total cost of borrowing, manage finances effectively, and avoid unexpected fees.
What regulations govern finance charges?
Regulations like the Truth in Lending Act (TILA) require lenders to disclose the annual percentage rate (APR) and other finance charges to protect consumers.