The Difference Between Interest and Finance Charge

May 20th, 2020 by

If you have been researching different offers for used car financing, you have probably run into some companies billing you a finance charge instead of charging a monthly interest rate. Both finance charges and interest rates must be provided to you in an APR, or annual percentage rate. This can make the two appear to be the same, but they are actually a bit different. Finance charge can also have more than one meaning.

Technical Definition of Finance Charge

According to accounting and finance terminology, the finance charge is the total fees that you pay to borrow the money in question. This means that the finance charge includes the interest and other fees that you pay in addition to paying back the loan. However, some companies and lenders may provide you with the finance charge and not an interest rate.

What Finance Charge Means in Most Personal Finance

When it comes to personal finance matters, such as for a payday loan or buying a used car on credit, the finance charge refers to a set amount of money that you are charged for being given the loan. Some lenders will charge you this amount regardless of whether or not you pay off the loan early. By contrast, when you are charged an interest rate you will pay less to borrow the money if you pay it off quickly.

It can be debatable which is more, a straight finance charge or an interest rate, or the combination of interest and fees. We offer reasonable interest rates and minimal fees at our used dealership in Tampa, making your experience affordable even if you have bad credit.

If you are looking for a used car for bad credit, contact us today to schedule an appointment with us.

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