The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. The annual percentage rate is the percentage cost (or relative cost) of credit on a yearly basis, which is your key to comparing costs, regardless of the amount of credit or how long you have to repay it. The higher the annual percentage rate, the higher the potential finance charge for the use of credit. All creditors’ banks, stores, car dealers, credit card companies and finance companies must state the cost of their credit in terms of the finance charge and the APR. Federal law doesn’t set interest rates or other credit charges. But it does require their disclosure so that you can compare credit costs. The law says these two pieces of information must be shown to you before you use a credit card. Return to index . . .