In personal finance, a financial fee can simply be considered as the dollar amount paid for borrowing money, while interest is the percentage paid, such as the annual interest rate (APR). These definitions are narrower than typical dictionary or accounting definitions. What is a financial charge?
Under US law, a financial fee is any fee representing the cost of a loan or the cost of a loan. These are interest accrued and charged for some forms of credit. It includes not only interest, but also other fees, such as financial transaction fees. Detailed information on the federal definition of a financial fee is provided in the Law on Lending Rights and Regulation Z, published by the Federal Reserve Board.
How to avoid financial burden
Because financial charges are a way of exposing your credit card to charge your balance, a simple way to avoid financial charges is to pay your full balance monthly.
Here’s how it works. The credit card has a grace period – usually 21 to 25 days after the end of the billing cycle – which is a chance to pay off your full credit card balance and avoid financial charges. You must pay the balance listed on your credit card statement to avoid being charged a financial fee on your next statement. If you pay only part of your balance, a financial fee will be charged to your next billing statement based on your unpaid balance and any new purchases. Promotions with deferred interest rates are often promoted just like zero balance transfers, but they are slightly different. The deferred interest offer will accrue interest on the balance – an estimate of the full financial fee from the beginning of the promotional period – if the balance is not paid by the end of the promotional period.
How promotional rates affect financial charges
Some credit cards offer a zero initial interest rate to encourage new customers who want to avoid interest on a new purchase or a high interest rate balance on another credit card. During the promotional period, you will generally not receive a financial fee on promotional balances, even if you do not pay the balance in full. However, after the promotional period ends, any remaining balance will begin to accrue financial charges in the regular APRC.
Financial charges and interest rates
One of the more common financial burdens is the interest rate. This allows the lender to make a profit, expressed as a percentage, based on the current amount that was transferred to the borrower. Interest rates may vary depending on the type of financing obtained and the borrower’s creditworthiness. Secured financing, which is most often secured by assets, such as a house or vehicle, often has lower interest rates than unsecured financing, such as a credit card. This is usually due to the lower risk associated with the return of the loan by the asset.
For credit cards, all financial charges are expressed in the currency on which the card is based, including those that can be used internationally, enabling the borrower to make transactions in a foreign currency.
Financial charges and regulations
Financial fees are subject to government regulations. The federal law on truth in lending requires disclosure to the consumer of all interest rates, standard fees and fines. In addition, the 2009 Credit Card Information and Disclosure Act (CARD) required a grace period of at least 21 days before interest on new purchases would accrue.