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LSDefine
Simple English definitions for legal terms
finance charge
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A quick definition of finance charge:
A finance charge is an extra amount of money that a person has to pay when they buy something on credit. It's like a fee for borrowing money. Usually, it's in the form of interest, which means you have to pay back more than you borrowed. It's important to understand finance charges so you can make smart decisions about how to pay for things.
A more thorough explanation:
A finance charge is an additional payment made by a retail buyer for the privilege of purchasing goods or services in installments. It is usually in the form of interest. In simpler terms, it is the cost of borrowing money to make a purchase.
For example, if you buy a car on installment, the finance charge is the extra amount you pay on top of the car's price. This extra amount compensates the lender for the risk of lending you the money and for the time value of money.
Finance charges are often used interchangeably with the term interest, but they may also include other fees such as service charges, late payment fees, and transaction fees.