Finance cost, also known as the cost of finances, is the cost, interest, and other charges involved in the borrowing of money to build or purchase assets. It is the total expenses associated with securing funds for a project or business arrangement, which may include interest payments, financing fees charged by intermediary financial institutions, and fees or salaries of any personnel required to complete the financing process. Finance cost includes interest on loans, overdraft charges, and other costs incurred by an entity in connection with the borrowing of funds.
The purpose of finance cost is to compensate the providers of funds for the use of their money. Lending money is their business, and they charge an interest cost to others as the price paid for obtaining loans and borrowings. The different types of finance costs include interest payments, financing fees charged by financial institutions in setting up the loan, and other charges such as account maintenance fees, late fees, and transaction fees.
