What is a finance charge and how does it relate to the billing cycle?

A finance charge is the cost of borrowing on your credit card and is calculated based on the outstanding balance and the applicable interest rate. It represents the interest and other fees you may be charged for carrying a balance on your credit card from one billing cycle to the next.

The finance charge is determined by multiplying the average daily balance by the periodic interest rate and the number of days in the billing cycle. The periodic interest rate is typically the annual percentage rate (APR) divided by the number of billing cycles in a year.

The finance charge is applied when you carry a balance beyond the grace period, which is the period between the statement date and the payment due date during which you can pay your balance in full without incurring interest charges.

It's important to note that if you pay your credit card balance in full by the due date each billing cycle, you can avoid finance charges. However, if you carry a balance, the finance charge will be added to your outstanding balance in the next billing cycle.

The finance charge can vary depending on your outstanding balance, the interest rate, and the number of days in the billing cycle. It is important to review your credit card terms and conditions to understand how the finance charge is calculated by your credit card issuer.