The amount charged to borrowers by merchants or banks for servicing an account or loan is known as a

• A. Finance Charge
• B. Interest
• C. Service Charge
• D. Penalty fee

Answer: (C)

The main idea here is distinguishing a fee tied to ongoing account maintenance from the cost of borrowing. The amount charged to borrowers by banks or merchants for servicing an account or loan is a service charge. This fee covers the administrative work of keeping the account—things like processing statements and payments and providing customer service.

Finance charge, on the other hand, is the total cost of credit: the interest plus any other charges over the life of the loan. Interest is specifically the price of borrowing, expressed as a rate applied to the loan balance. A penalty fee is a charge assessed for late payments or violations of the loan terms. So the servicing-related fee fits the term service charge, not the broader or separate charges described by the other options.