Which term means the amount a borrower must pay to use credit?

Which term means the amount a borrower must pay to use credit?

• A. Interest
• B. APR
• C. Finance Charge
• D. Service Charge

Answer: (C)

Finance charge is the total dollar amount a borrower pays to use credit. It includes not just interest but all other charges the lender adds to extend credit, such as origination fees, points, and other loan-related fees. Because it represents the complete cost in dollars, it best fits the idea of “the amount a borrower must pay to use credit.” APR is about cost expressed as an annual percentage rate and helps you compare loans, but it’s a rate, not a dollar amount. Interest is the charge for borrowing money and is part of the finance charge, but on its own it doesn’t capture the full cost. A separate service charge would be a specific fee for processing or maintaining the loan, not the total borrowing cost. For example, if you borrow $1,000 and incur $80 in interest plus a $20 origination fee, the finance charge is $100, which is the total extra amount you pay beyond the principal.

Finance charge is the total dollar amount a borrower pays to use credit. It includes not just interest but all other charges the lender adds to extend credit, such as origination fees, points, and other loan-related fees. Because it represents the complete cost in dollars, it best fits the idea of “the amount a borrower must pay to use credit.”

APR is about cost expressed as an annual percentage rate and helps you compare loans, but it’s a rate, not a dollar amount. Interest is the charge for borrowing money and is part of the finance charge, but on its own it doesn’t capture the full cost. A separate service charge would be a specific fee for processing or maintaining the loan, not the total borrowing cost. For example, if you borrow $1,000 and incur $80 in interest plus a $20 origination fee, the finance charge is $100, which is the total extra amount you pay beyond the principal.