The finance charge you will pay in dollars is the only thing you need to know about a loan.

True

False

The answer is "False."

Explanation:

A "finance charge" refers to the amount of money that a person will pay for borrowing or loaning a certain amount of money. This includes the interest for the loan and other added fees.

Although this is an important information you'll need to know, it is also important to consider other things such as how it is being calculated in order to anticipate the amount you will be paying in the future. You should also consider ways on how to avoid it.

The finance charge can be calculated in a simple way:

balance * monthly rate

You can get the monthly rate, if you know the Annual Percentage Rate (APR) of your loan. You can just divide the APR by 12, if you'd like to get the monthly rate. Let's say, your balance is $300 and your APR is %20. Then:

%20 APR : 12 months = %1.6 interest rate per month

So, $300 * %1.6 (0.016) = $4.8 monthly finance charge

This means, that you also have to pay the monthly finance charge, in addition to your balance.

In order to prevent incurring finance charges, it is best to pay the full balance every time. This will enable you to save more money, rather than paying charges in the future.