What is defined as the interest charged to a borrower for the use of credit?

What is defined as the interest charged to a borrower for the use of credit?

• A. Principal
• B. Payment plan
• C. Finance charge
• D. Annual percentage rate

Answer: (C)

The finance charge represents the cost of borrowing money, which includes the interest charged to a borrower for the use of credit. This charge can encompass more than just the interest rate; it may also include fees and other costs associated with obtaining credit. It provides a clearer picture of the total cost incurred by the borrower when accessing credit. For instance, when a consumer takes out a loan or uses a credit card, the finance charge reflects all associated costs of borrowing, thus enabling borrowers to understand the total expense of their credit obligations over time. This may also be compared to other terms such as "principal," which refers to the initial amount of money borrowed and does not encompass any additional costs like interest, or "annual percentage rate," which is a way of expressing the cost of borrowing as an annualized percentage but does not address the total charges directly. Understanding the finance charge is essential for borrowers to make informed decisions about their credit use and manage their finances effectively.

The finance charge represents the cost of borrowing money, which includes the interest charged to a borrower for the use of credit. This charge can encompass more than just the interest rate; it may also include fees and other costs associated with obtaining credit. It provides a clearer picture of the total cost incurred by the borrower when accessing credit.

For instance, when a consumer takes out a loan or uses a credit card, the finance charge reflects all associated costs of borrowing, thus enabling borrowers to understand the total expense of their credit obligations over time. This may also be compared to other terms such as "principal," which refers to the initial amount of money borrowed and does not encompass any additional costs like interest, or "annual percentage rate," which is a way of expressing the cost of borrowing as an annualized percentage but does not address the total charges directly. Understanding the finance charge is essential for borrowers to make informed decisions about their credit use and manage their finances effectively.