What Is a Finance Charge on a Loan?

The term “finance charge” is used to describe a number of different fees or charges applied to a loan, credit card, or other financial product. The interest you pay on a loan, the additional fees, and any other fees you’re charged for borrowing are all considered finance charges. Simply put, it is the cost of borrowing. 

Paying attention to the finance charges for a loan or credit card is very important. Adding up all of these charges and interest fees will tell you how much you’re going to pay for the entire loan. Make sure you’re not just focusing on the simple interest rate, or the origination fee, but adding up each and every fee in addition to the APR. 

APR is the best indicator of how much you’ll pay throughout the life of the loan. This is possibly the most important thing to consider when shopping for a loan. APR stands for annual percentage rate, and it’s the total amount of interest and fees you would pay if the loan were to last one year. The APR takes into account all the additional fees and charges that the lender adds onto the loan, as well as the interest rate. 

If you’re considering applying for a loan, make sure that the lender is up front about the APR. They are legally required to disclose the APR, and if a lender isn’t then that’s a good indication that they’re not a trustworthy lender. In fact, any time you’re applying for a loan, credit card, or other financial product, make sure you get a clear explanation of all of the fees and charges associated with it. 

There are a number of different types of fees for financial products. They may be called origination fees, application fees, service fees, prepayment penalties, processing fees, and more. But the thing they all have in common is that they are finance charges. Your best bet for getting a good deal is to make sure the lender tells you the “total finance charges” and the APR. Then you can compare these fees with other lenders and choose the one that works best for you.