Finance charges and interest are related concepts but they are not always the same thing.
Interest is the cost of borrowing money and is calculated as a percentage of the amount borrowed. It is the compensation paid by the borrower to the lender for the use of the borrowed funds.
Finance charges, on the other hand, are the fees that a lender charges for the use of their funds or services. Finance charges can include interest, but they can also include other fees such as origination fees, transaction fees, late fees, and annual fees.
So while interest is a type of finance charge, not all finance charges are interest. For example, if you have a credit card, your finance charges may include interest on the unpaid balance, annual fees, and late fees.
It’s important to understand the difference between interest and finance charges, as they can both affect the total cost of borrowing or using credit.
