Prepaid Finance Charge

  

Categories: Credit

Our local gas station just taped up a new notice in its front window. Every time we pay for gas using a debit or credit card, we’ll be charged a 25-cent fee. “What kind of malarkey is this?” we ask ourselves as we fill up our Prius.

This kind of malarkey isn’t actually malarkey at all. Rather, it’s something called a “prepaid finance charge”: a separate fee we automatically pay when completing a transaction.

We see prepaid finance charges all over the place—like our fave gas station—but one of the most common places they can be found is in the wonderful world of loans. If we, for example, decide to buy a house, we’ll have all sorts of prepaid finance charges attached to our closing costs: origination fees, administration costs, processing fees, etc. These fees are automatically added onto our bill, and must be paid in full if we want to conclude the transaction—i.e., if we want the home loan—which is why they’re considered “prepaid.” Sometimes these fees are negotiable, but usually only before we pay them. Also, since lenders don’t always tape notices in their windows telling us what kinds of fees we’ll be paying and how much they are, it’s wise to shop around, ask questions, read the fine print, and make sure we know what we’ll be asked to pay come closing time.

Related or Semi-related Video

Finance: What is Stagflation?0 Views

00:00

Finance allah shmoop What is stagflation All right well to

00:06

win a single male deer gets really pumped Yeah maybe

00:11

that well it's actually a really bad economic situation The

00:14

economy is stagnating not growing and maybe it's even shrinking

00:19

with unemployment rampant And at the same time prices are

00:23

getting higher That is there is in fire ablation Well

00:26

fuse those two elements together and you have stagflation Generally

00:30

high inflation and stagnant growth live on opposite sides of

00:34

the economic playground You usually don't have one without the

00:38

other far far away Like if the economy is weak

00:41

and demand is light and people are unemployed Well then

00:45

why Or even how could prices possibly go up in

00:49

an inflationary environment rather than down Yeah doesn't make sense

00:53

But this phenomenon does happen So what causes the perfect

00:56

storm to create it To create this stagflation Well it

00:59

could be one of two things Really There might be

01:02

a supply shock Like if oil prices suddenly skyrocket like

01:06

they did in the seventies Or there is quote extra

01:10

unquote e two largest supply of money Well how does

01:14

that happen While the government simply prince too much cash

01:17

The central bank expands the money supply and or creates

01:20

too much credit low interest rates for borrowing for all

01:23

and well now we have inflation even in a stagnant

01:26

time Then taxes go up and or interest rates rise

01:30

so we have slower growth Punishes it on the other

01:33

waves People are starting to buy last They're feeling the

01:35

interest rate Incheon was expensive credit cards right They bite

01:39

you when you go to the mall and you have

01:40

to pay twenty two percent a year So yeah it's

01:42

a rare situation but it has happened in the past

01:45

So when did this phenomenon most recently occur How vicious

01:49

was it Yeah the nineteen seventies they're known as the

01:51

era of stagflation The government was manipulating the business world

01:55

trying to grow the economy while at the same time

01:58

demanding wage khun trolls feeling supply and supporting unions making

02:03

america less competitive globally while the rest of the world

02:06

was suffering as well as we were under the oil

02:10

price shock that the arab opec oil boycott of america

02:14

and the rest the world kind of came to bear

02:16

it was an ugly time the era of stagflation and 00:02:19.61 --> [endTime] yeah thanks there jimmy

Up Next

Finance: What is a Line of Credit?
133 Views

What is a line of credit? A line of credit is kind of like a loan. A bank gives a borrower a line of credit, which basically says they can borrow ...

Finance: How Do Credit Card Companies Work?
115 Views

How do credit card companies work? Credit card companies are, in a way, lenders. They give consumers a rectangular piece of plastic that allows the...

Find other enlightening terms in Shmoop Finance Genius Bar(f)