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Finance Charge Definition

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Definition: The finance charge is an interest fee charged on revolving credit accounts. Finance charges are calculated using the APR and the balance. Creditors have different methods of calculating finance charges. The most commonly used method is the average daily balance method which applies the APR to an average of your balance each day during the billing cycle. Learn Six Ways Finance Charges Are Calculated.

The higher your interest rate and balance on your credit card, the higher your finance charge will be. Finance charges are a convenience cost and can be avoided by paying your balance in full before the grace period ends. If you have disputed billing errors, you don't have to pay a finance charge on the disputed amount while it is being investigated. Your credit card agreement may include a minimum finance charge that's charged anytime your balance is subject to a finance charge.

You be charged more than one finance charge, if you have different types of balances on your credit card. For example, you could be billed for a finance charge on purchases and a finance charge on cash advances separately. This is because these balances often have different interest rates and grace periods.

 

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