Finance charges on credit cards: Simple ways for credit card companies to increase your bill

Duran Mueller
Jul 2, 2007
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Simply speaking finance charges are all those charges that the borrower pays for the use of funds including interest, fees and other charges paid directly for the use of credit, or indirectly as a condition for the extension of credit. The importance of finance charges in credit cards is simply too big to overlook. Finance charges form a major part of our credit card bills and it is in the interest of every credit card user to know them fully. This article takes a look at various types of finance charges that credit card companies levy on credit cards.

Every credit card is subjected to some finances charges and these are charged to the credit card in their monthly bill.

Periodic Finance Charges. These are imposed on Purchases beginning on the date a purchase is posted to the credit card account. Periodic finance charges for both purchases and cash advances are calculated at a daily rate which is equivalent to the APR or Annual Percentage Rate of your credit card. With most of the credit cards, there is no minimum periodic finance charge, if any, it is mentioned in the credit card terms and conditions.

The cash advance fee is also considered as the finance charge by credit cards. This fee is levied whenever a credit card holder uses his credit card to withdraw cash. This cash advance fee is usually 3%-5% of the total cash amount withdrawn.

If your credit card charges an account processing fee it will be billed under the finance charge category.

Similarly if there is a program participation fee, which is charged for enrolment for the credit card, it will also be included as a finance charge.

If you want to add another user to your credit card account and the credit card company charges any authorized user fee, it comes under finance charge.

If you want to increase your credit limit and the credit card company charges you a credit limit increase fee, it will be put under the finance charge section.

Likewise, the card replacement fees, foreign currency transaction fees, and any other fees that credit card company want to levy on your credit card can be clubbed under the finance charges.

It is good to know all the applicable finance charges in advance and if you find anything which looks fishy, it's time to contact the credit card company and ask about it.