Insurance and debt cancellation coverage can also be excluded if the coverage is not required by the creditor, the premium for the initial term of insurance is disclosed, and the consumer signs or initials a written request for the insurance. If itemized and disclosed, certain taxes and fees prescribed by law are also excluded from the finance charge.
Explaining the amount financed would be much simpler if each loan came with an “itemization of amount financed.” The itemization would include a detailed list of the loan amount, the payment schedule, and each finance charge.
Another factor in calculating your APR is the payment schedule. To determine the payment amount to apply against the amount financed, divide the total of payments by the number of payments and use this average amount. On a fixed-rate loan, the payment schedule is quite simple-the monthly payment is the same through the life of the loan. Variable payments (as in an ARM, Buydown, GEM, or GPM) may be more complicated on a payment schedule. The APR or ARMs can change based upon future interest rate changes. Buydowns, GPMs, and GEMs have fixed payment schedules, so the APR on these loans will not change.
After the APR, amount financed, and total of payments have all been calculated, what is the total finance charge? The difference between the total of payments and the amount financed represents the cumulative total of all interest and prepaid finance charges accrued on the loan, or the total finance charge. Subtracting the amount financed from the total of payments reveals this number.