A purchase finance charge is a fee applied to purchases on a credit account like a credit card. This typically takes the form of an interest charge, although some accounts may have other terms. It is important to read the terms and conditions associated with financial accounts carefully to determine what kinds of charges may arise, and how to discharge them appropriately. Being aware of how the fees are structured can be important for consumers who want to avoid or minimize fees. In the event of a dispute over a charge, consumers can file a complaint to ask for a review of the matter.
Credit card companies typically apply a purchase finance charge by determining the average daily balance, multiplying by the assigned interest rate, and dividing by 365. Those who carry large balances on their cards can incur high finance charges, while consumers who pay cards off within the grace period may have no outstanding fees on their accounts. The purchase finance charge is usually a flat interest fee for all purchases, although in some cases the company may classify purchases in different tiers.
This is separate from other fees that may be associated with a credit account. Withdrawing cash usually incurs a higher interest fee, and people can also be charged for late payments. Some accounts may come with an annual maintenance fee the account holder must pay in order to keep the account active and valid. All of these fees together contribute to the cost of borrowing.
A company must disclose the purchase finance charge it uses for transactions, and provide information about how it is calculated. Credit accounts can treat billing cycles differently. The amount of grace period built in before purchases incur finance charges can vary. With some cards, charges rack up immediately. Others allow purchases to sit on an account for a month before they start to apply fees.
If a company makes an error in calculating the purchase finance charge, the consumer can appeal. It may be possible to waive or reduce the fee. It is important to read all communications from credit card companies, as some may contain changes to the terms and conditions, such as an increased interest fee. Consumers who fail to understand these changes may get confused when the fees associated with an account change, and could file a complaint when the company is not actually in the wrong.