Credit cards can have a variety of rates and fees that cardholders should be aware of, and the most prominent is the finance charge.
Read below to what is a credit card finance charge!
What Is a Finance Charge?
A credit card’s finance charge is the interest fee charged to credit accounts. It is linked to a card’s annual percentage rate (APR) and is calculated based on the cardholder’s balance.
Generally card holders are not aware of finance charges until after they have purchased something. The charges come into affect when card holders allow a portion of their balance to carry over to the next month.
Interest vs Finance Charges
Interest is a finance charge that cardholders pay if they carry a balance on their credit cards. Finance charges include a variety of other transaction fees in addition to interest, including late fees and maintenance fees.
What Affects Finance Charges
There are several factors that affect finance charges, the most significant factor is the interest rate. Card holders who qualify for the lowest interest rates pay less in finance charges than card holders who pay higher interest rates.
Consumers can also lower their payments by lowering their interest rates.
To qualify for the lower interest rate, customers may need to pay down debt, budget so they pay bills on time and verify their credit reports regularly.
How To Avoid Finance Charges
If you do not pay your balance in full each month you will have to pay a finance charge for carrying the debt. If you cannot pay off the balance, cardholders may be able to take advantage of an offer to transfer balances to another card with a 0% APR.
The best way to avoid finance charges is to best understand how you incur these charges!
Author’s Verdict
When reviewing your credit card billing statement, finance charges are something you want to verify in order to ensure you’re being charged properly for any outstanding balance.
Hopefully the above information helps you understand what credit card finance charges are.
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