What is Finance Charge on Car Loan? Explained Simply.

what is finance charge on car loan

Are you thinking of taking out a car loan but feeling overwhelmed by all the financial jargon? One term you might come across is a finance charge. But what exactly is it and how does it affect your loan payments? Don’t worry, we’ve got you covered! In this blog post, we’ll explain simply what finance charge on car loan means and break down its components so that you can make informed decisions about your auto financing options. Get ready to take control of your finances like a pro!

What is finance charge on car loan?

A finance charge is a fee charged by a lender when a loan is approved. This fee can be assessed on a variety of loans, including car loans. Car loans typically have a higher what is finance charge on car loan than other types of loans because the interest rate on car loans is often higher than on other types of loans.

How finance charges are calculated

There are a few different ways finance charges can be calculated on a car loan. The most common way is to use an interest rate and a term. For example, if you take out a car loan with a 6-month term and an interest rate of 10%, your finance charge would be $60 per month.

Another way finance charges can be calculated is by using the principle amount and the APR. For example, if you borrow $20,000 with a 5% APR and a 10-year term, your finance charge would be $240 per year.

When do finance charges apply?

In general, finance charges apply when you borrow money to buy a car. The interest that you pay on the loan amounts to the finance charge. This charge can be a significant portion of the total amount that you borrow. The interest rate on a car loan is typically high, which means that this charge can be a significant expense.

Ways to reduce finance charges

There are a few ways to reduce finance charges on a car loan. Here are four tips:

1. Shop Around for the Best Rate: The best way to save on finance charges is to shop around. Compare rates from several different lenders before you decide on one. You may be able to get a better rate by using a credit union or a private lender.

2. Get a Low Interest Rate: One way to save money on your car loan is to get a low-interest rate. Ask your lender about introductory offers, and look for loans with interest rates below 10%. Interest rates can vary significantly from one lender to the next, so it’s important to compare rates before you commit.

3. Make Use of Many Loan Options: Another way to save on finance charges is to make use of many loan options. For example, you can borrow money through auto loans, personal loans, home equity loans and more. This will help cover the cost of your vehicle in full and spread out the cost over several months or years.

4. Consider Paying Down Your Car Loan Early: Another option for reducing finance charges is to pay down your car loan as quickly as possible. This will lower your monthly payments and save you money in the long run. Read more…


In short, what is finance charge on car loan are a fee that the bank charges you for borrowing money. The higher the interest rate on your loan, the more expensive it is to borrow and the higher finance charges will be. What this means for you as an individual is that if you want to get a car loan with a lower interest rate, make sure that your credit score is high enough and that you agree to pay off the loan in full within a certain time frame – otherwise, you’ll be paying higher finance charges regardless!

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