# How and Why it is Important to Learn How to Calculate Finance Charges

How and Why it is Important to Learn How to Calculate Finance Charges

People who get confused when faced with financial charges could do with some refreshers. It is always to your benefit to know what and how you are paying for something rather then be left always wondering why you are paying a certain amount. You might even save yourself money if you can spot discrepancies in your financial statements.

Having some knowledge will always be a great thing. If say you are borrowing money, the people you got money from will be more than happy to provide you with this calculation but it might be better if you could do the math on your own. The method shown here will be simpler while as your lenders may use a more complicated formula. You may have some conditions in your deal that might affect the outcome as well.

First thing you should know is that a loan has only two basic parts. The first part may be called as the principal part; this part is the amount that you have managed to borrow form the lenders. The lenders then make money out of the amount that you borrowed because he considers this as his service to you and he wants to be paid for his services. This is why he charges you interest on the amount that you borrowed. A lot of interest types exist, from simple to the variable kind. This calculation here will use the simple interest type.

When you get a load that gives you the simple interest deal, the interest amount is expressed in percent and will not evolve over the length of the loan. A fantastic thing called fixed interest or flat rates. This is how the calculation goes. To calculate for interest you have to multiply the principal amount by the rate and multiply the number that you get by the time that you are availing of that loan. The rate is in decimal form so you have to divide your percentages by 100. Like say if your sate is 15% you express it as 15/100 or as 1.5 in your formula. You can use this simple formula for financial charges that are concerned with borrowing and lending of money.