Legal Definitions - credit service charge

credit service charge

A credit service charge refers to the total cost a borrower pays for the privilege of using credit or borrowing money, beyond the principal amount received. This charge compensates the lender for providing the credit service and covers various expenses, including interest, administrative costs, and other fees associated with the credit account.

Examples:

• Imagine Sarah uses her credit card to make purchases and carries an outstanding balance each month. The interest that accrues on this balance, along with any annual fee her credit card company charges, are components of the credit service charge. These are costs Sarah pays for the ongoing convenience of using her credit card.

• When David takes out a loan from a bank to purchase a new car, the bank charges him an interest rate on the borrowed amount. Over the five-year term of the loan, the total amount of interest David pays, in addition to any loan origination fees the bank might have charged at the outset, collectively represents the credit service charge for his auto loan.

• Consider a small business owner, Maria, who secures a line of credit from her bank to manage fluctuating cash flow. If her agreement includes a monthly maintenance fee for the line of credit, even if she doesn't draw funds, and an interest rate on any amounts she does borrow, these fees and interest payments are all credit service charges for accessing and utilizing that credit facility.