What is a Finance Charge

What is a Finance Charge

What is a Finance charge and the definition of finance charge is it is a fee charged for borrowing money or property or extension of payment of loan or credits. The percentage charge on goods borrowed is the common way of financial charge where the buyer pays an extra amount of money different from the amount of that particular goods. A good bought at a particular amount of money but lent out with accrued percentage of money for the borrowing. This accrued percentage is the finance charge.

READ: How to manage finances

Related Articles

Finance charge is usually charged by the lender and this charge carries the cost of carrying debt on the goods along with any related transaction fees, account maintenance like credit card charge and debit card maintenance charge or extended fees.


Finance charges allows sellers or lenders to make profit and over profit on the goods lent out to the buyers or borrowers. Finance charge gives the lender opportunity to have quick access to extra profit from the particular property he had bought before giving it out on loan or lending it out. 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. (Google).

What is a Finance Charge

What is finance charge and to describe it as finance charges are a way of compensating the lender for lending the property out to the borrower or for the borrower extending the time the debt to be paid. These finance charge can increase daily or weekly or monthly base on the agreement between the lender and the borrower. The finance charge can amortise gradually or instalments if the borrower pay the debt on time. Finance charges can vary from property to property or from lender to lender or seller to seller.

READ: What is a bond in finance

Finance charge is usually considered by the lender or seller. The sellers or lenders varies as there are some sellers that like money and would not want the debt to be paid at a particular time thereby increasing the interest rate as they have been given opportunity by the owner finance. Some property has little finance charge while some has a large finance charge.

There is no any formula on how interest rate should be charged as the seller can decide any amount he would charge for interest on his property. Every property owner has the benefit from owner finance which gives them the opportunity to charge any interest rate and can also increase the interest rate if the borrower could not pay at the stipulated time. This extra charge provided by the lender or the rate is called finance charge. Interest rate is one the most common finance charge available and in economy.

Interest rate is the additional money accrued on goods borrowed to be paid to the lender after the use of the property. This allows the lender to make a profit, expressed as a percentage, based on the current amount that has been provided to the borrower. Interest rates vary depending on the type of financing involve in the running of that particular business. Some property like home and vehicle which are usually finance secured carries lower interest rate than credit card which is an unsecured financing.

READ: Skills required for finance manager

This is most as a result of risk that are low associated with rents that are backed by the assets owned by the borrower. Finance chargers are based on the card that the transaction is occurred in credit cards, this includes those that can be used anywhere and in alleviating debt or borrowing

Finance Charges and Regulation

What is Finance charge and its regulations, finance charges are regulated by the government policy. The united rule law has a finance charge as any fee denoting the cost of collecting credit or borrowing property. The finance charge does not only include the interest rate but other charges like the financial transaction.

The truth-in-lending act and regulation Z promulgated by the Federal Reserve Board has the details of the definition of the finance charge. Finance charge is the amount in dollar considered simply for the payment of money borrowed in personal finance. Interest rate is the amount to be paid in percentage on the property borrowed by the borrower to the lender in personal business.

Facebook Comments Box


Harish is the editor at howto Finance. Here we publish high quality trending news topics on Business, Finance, Loans and Credit-Cards etc. Our editorial includes worldwide topics.

Related Articles

Back to top button