1. What is Annual Finance Charge?

The Annual Finance Charge represents the total cost of credit over one year, calculated as the product of the outstanding balance and the annual percentage rate (APR). It helps consumers understand the true cost of borrowing.

2. How Does the Calculator Work?

The calculator uses the simple finance charge formula:

Where:

• \( Balance \) — Current outstanding balance in USD
• \( APR \) — Annual Percentage Rate expressed as decimal (e.g., 0.15 for 15%)

Explanation: This calculation provides the annual cost of carrying a balance without considering compounding or additional fees.

3. Importance of Finance Charge Calculation

Details: Understanding annual finance charges helps consumers compare credit products, make informed borrowing decisions, and plan debt repayment strategies.

4. Using the Calculator

Tips: Enter balance in USD and APR as a decimal (e.g., 0.15 for 15%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this the same as interest?
A: The finance charge includes both interest and other fees, though this calculator focuses on the interest component.

Q2: Does this account for compounding?
A: No, this is a simple calculation. For compounding interest, more complex formulas are needed.

Q3: How does APR differ from interest rate?
A: APR includes both interest rate and certain fees, providing a more complete picture of borrowing costs.

Q4: When is this calculation most accurate?
A: For simple interest loans where the balance remains constant throughout the year.

Q5: How can I reduce my finance charges?
A: By paying down balances faster, negotiating lower APRs, or transferring balances to lower-rate products.