Finance Charge

AAA

DEFINITION of 'Finance Charge'

A fee charged for the use of credit or the extension of existing credit. May be a flat fee or a percentage of borrowings, with percentage-based finance charges being the most common.

A finance charge is often an aggregated cost, including the cost of the carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.

INVESTOPEDIA EXPLAINS 'Finance Charge'

Finance charges allow lenders to make a profit on the use of their money. Finance charges for commoditized credit services like car loans, mortgages and credit cards have known ranges and will depend most on the credit-worthiness of the person looking to borrow.

Regulations exist in many countries that limit the maximum finance charge assessed on a given type of credit - but many of the limits still allow for predatory lending practices, where finance charges can amount to 25% or more annually.

RELATED TERMS
  1. Adequate Notice

    A written document that specifies in detail the terms and conditions ...
  2. Credit Card

    A card issued by a financial company giving the holder an option ...
  3. Aggregation

    1. Used in corporate financial planning, aggregation is a process ...
  4. Consumer Credit

    A debt that someone incurs for the purpose of purchasing a good ...
  5. Compounding

    The ability of an asset to generate earnings, which are then ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), ...
Related Articles
  1. Entrepreneurship

    Microfinance: What It Is And How To Get Involved

    This growing industry is full of opportunities for the socially conscious investor.
  2. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  3. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  4. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  5. Credit & Loans

    Top 10 Common Mortgage Scams To Avoid

    How do you know which companies to avoid? Look for these telltale signs.
  6. Credit & Loans

    Can You Get A Mortgage On A Mobile Home?

    You can get a loan for a mobile home, but it may not be a mortgage. These are the choices for funding manufactured housing.
  7. Credit & Loans

    Getting A Mortgage After Bankruptcy Or Foreclosure

    Millions of Americans had homes foreclosed and millions more went into bankruptcy. Here are the necessary qualifying steps to buying a home again.
  8. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine – including, so you don't forget you have the card.
  9. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  10. Credit & Loans

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center