What is a finance charge on a credit card?

A credit card finance charge is the interest charged on a credit card balance and any other fees associated with borrowing money. Typically, a finance charge that appears on a credit card bill is the interest accrued over the course of the last billing cycle. However, a finance charge can also refer to other fees, such as cash advance and balance transfer fees, and sometimes even annual fees. But generally speaking, finance charges in credit card terms refer to interest charges.

The interest included in a credit card finance charge is calculated based on the credit card’s annual percentage rate, or APR. There are different APRs for different types of credit card transactions. A regular APR is for general purchases, while balance transfers and cash advances may have their own interest rates.

Having to pay interest on a credit card bill is expensive. But there are ways to avoid getting slapped with a finance charge. If you pay your bill in full every month by the due date - and you don’t have any cash advances on your account - you won’t accrue any interest due to the grace period that most credit cards give cardholders. That means no finance charges on your bill. However, the first time you carry a credit card balance from billing period to billing period, the balance turns into a revolving debt, and your grace period is forfeited. That means interest will accrue daily until you pay your bill in full two months in a row and get your grace period back.

If you already have a finance charge on your credit card bill and want to avoid paying it, consider calling your credit card company and asking them to waive the charge. Trying this won’t cost you anything. And if you don’t usually carry a balance on your card, reports online suggest card issuers may be more willing to waive a finance charge.