Definition: The dollar cost of borrowing, which may include interest and certain fees depending on the disclosure rules that apply.
In plain words
A finance charge is the cost of borrowing in dollars: the interest and certain fees you pay on top of the amount you borrow.
Why it matters
It answers the simple question “how much does this loan cost me?” Laws differ on which fees must be counted, so compare the finance charge with the full list of fees in your agreement.
Example
Illustrative example: You borrow $500 and must repay $575. If the $75 is interest and a required processing fee, the finance charge is $75. An optional fee you choose not to pay would not be part of it.
Always read the term in the context of your own agreement and local law.