Finance Charge

A finance charge is a fee that a lender earns in exchange for the issuance or extension of a line of credit. A finance charge can take the form of an origination fee on a loan or interest payments associated with the amortization of a loan. A finance charge is often a function of a borrower’s creditworthiness. Thus, the higher a borrower’s creditworthiness, the lower a finance charge may be.

Finance charges provide lenders an incentive to provide funds to consumers and businesses. Without the, lenders would receive no compensation for providing liquidity to individuals and businesses.

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