Question

Jim Smith borrowed $2,000 at a 6% add on rate for two years What is the finance charge ? Show your calculations below.

Answer 1

the finance charge is $420

Step-by-step explanation:

Finance charge constitutes Interest cost to be paid on the loan. Interest compensate the lender for forgoing the alternative of investing the money elsewhere.

Annual finance charge :

Interest charge = $2,000 x 6% = $120

After two years :

Interest charge = $120 x 2 = $420

Therefore, the finance charge is $420.