What Is a Finance Charge on a Credit Card?
What it includes
A finance charge is what the issuer charges you to borrow. The main component is interest on any balance you carry past the due date, calculated from your APR. It can also include cash advance interest (which starts immediately) and certain transaction fees. On your statement it appears as interest charged for the period.
When you get charged one
You only incur a finance charge when you carry a balance or use features that bypass the grace period. Pay your statement balance in full by the due date and purchases never generate interest, so your finance charge is zero. Carry even part of the balance and interest applies, often back to the purchase date.
How to avoid it
The rule is simple: pay in full every month to stay in the grace period. Avoid cash advances, which charge interest from day one with no grace period. If you are carrying a balance, minimizing the finance charge means paying it down fast or moving it to a 0 percent offer. See how interest works.
Frequently asked questions
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