What are Finance Charges in Credit Card?

Hi there,

Suppose that you are lending a large sum of money to a complete stranger. To justify the risk, you'd definitely want some additional remuneration or collateral, right? Consider yourself a credit card firm that extends credit to millions of people despite the possibility that some of them will default on their payments. This is where finance charges take an entry and every lending firm must know what are finance charges in credit cards. The majority of credit cards have finance costs, which are designed to compensate the lender for the risk of non-payment. However, what are finance costs and how are they calculated? 

Simply put, a finance charge is any fee incurred as a result of the use of credit. A finance fee is defined by the law as "the aggregate of all costs, payable directly or indirectly by the person to whom credit is provided, and imposed directly or indirectly by the creditor as an incident to the granting of credit," according to the Truth in Lending Act.

Your card issuer will include any finance charges with your purchases and payments on your monthly statement. Your card issuer will determine how your finance fee appears on your statement. It may, for example, be listed in a separate finance charge category, or the statement could simply list all of the components that make up a finance charge (such as interest, international transaction fees, yearly fees, cash advance fees, and so on) alongside your purchases and other activities. 

Following are the fees included in a credit card finance charge

• Interest

• Cash advance fees

• Annual fees

• Late payment fees

• Foreign transaction fees

• Balance transfer fees  

The interest you pay if you don't pay off your credit card amount in full every month is the most prevalent sort of financing charge. Most other expenses, such as annual or late fees, are usually flat fees. Cash advances and balance transfers may be subject to flat fees on some credit cards. Foreign transaction fees, for example, are often calculated as a percentage of the transaction value.

I hope now you know

what are finance charges in credit card and what fees to look out for in finance charges.