Business Glossary

cost of credit, including interest, paid by a customer for a consumer loan. Under the Truth in Lending Act, the finance charge must be disclosed to the customer in advance.

borrower's total cost of credit, including loan interest, commitment fees, and prepaid interest, in a consumer loan. Under the Truth in Lending Act, the finance charge must be disclosed as the total dollar cost of credit. Contrast with Annual Percentage Rate (APR) , which states the cost of credit as an annualized rate.

The finance charge does not include late payment fees, annual charges, such as a credit card annual fee, and credit insurance, except in situations where the lender requires insurance before a loan is made.

any charge for an extension of credit. interest and discount points are two major types of finance charge.

interest or certain other fees charged to a credit customer.

Example: A customer makes purchases of $400 on credit. Payment is made one month later. Based on an annual percentage rate of interest of 18%, a finance charge of $6.00 (.8/12 × $400) is added to the bill.