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Finance Charge

by C Roberts

In United States legislation, a finance charge is the price charged to a borrower by a lending institution as compensation for using credit. It is usually interest charged on and sometimes fees charged for, various forms of credit (credit cards, loans, etc). It also includes other fees such as processing fees, payment service charges, and financial transaction costs. A finance charge typically applies when the credit limit has been exceeded, as when a credit card is used beyond its credit limit, or if the balance is high enough to attract high fees from a bank. There are several common types of finance charges, with the following explanation.

The first form of finance charge that a lender may apply to a borrower is a late charge. This fee is assessed when the time period specified by the lender is not met. If the lender does not allow borrowers a grace period before applying a late fee, the borrower will be subject to a finance charge after the specified time period has elapsed. Some lenders may apply a penalty fee to borrowers who miss payments, even though they are required by law to allow borrowers at least thirty days to repay the loan without incurring penalties.

The second type of finance charge that a lender can apply to a borrower is an over-limit fee. When a borrower uses a credit card to pay for items that do not qualify for financing, or when they exceed their credit limit, the lender will assess a late fee. However, if the borrower cannot pay back the item immediately and needs more time, the lender may apply an over-limit fee to the borrower. Over-limit fees generally apply on items that cannot be paid back immediately, or that the borrower may not be able to pay back with money available in the bank account at the time the item was made. For example, if a borrower makes a purchase that exceeds the credit limit on his credit card, the lender may apply an over-limit fee to prevent the borrower from paying back the debt before the specified time period has elapsed.

The third type of finance charge that a lender can apply is a refund charge. This fee is applied when the borrower fails to repay the loan in full or when he or she defaults on his or her payment. If the borrower is unable to pay back the loan, the lender can apply for a refund charge to recover some of the costs of the loan, including the interest, the payment service charge, the processing fee, and the legal fees. {if any. charged to the borrower for the unpaid amount.

The fourth type of charge that a lender can apply is a late fee. When a borrower misses a payment or defaulted on a loan, the lender may assess a late fee on the borrower’s account, with the amount increasing as the time elapses.

The fifth type of finance charge that a lender can apply is an annual fee. This fee is typically applied to a borrower’s account when the loan has been in effect for one year, although it may not be applied until six months after the loan has been made. This fee is assessed on top of the finance charges assessed above. If a loan is made for an additional twelve months or more, it is considered an extended loan. After an additional two years, the lender can apply a balloon fee to the borrowers account.

The sixth type of finance charge that a lender can apply is a renewal charge. This charge can be applied only to renew a loan after an initial period of twelve months has expired. This charge can be applied only to loans that have been renewed previously. After the first twelve months, the borrower may be required to renew his or her loan for another two years, at a regular renewal fee.

A lender can apply all of these finance charges at any point in time, regardless of whether the borrower has repaid the loan or defaulted on his or her payment. The lender can assess a charge on the borrower’s account only if he or she makes a late payment or defaults on a loan. The finance charges applied to the account will increase as the loan is renewed. If a borrower has a high credit score, the charge applied to the account will be smaller than that applied to borrowers with less good credit.