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When a borrower prolongs loan repayment, the finance charge increases due to additional accrued interest and fees.
If a borrower takes longer to pay back a loan, the finance charge increases as the extended repayment period leads to more accrued interest. Lenders charge additional fees or higher interest rates for extended repayment terms to compensate for the extended risk exposure.
For example, if a borrower initially took out a [tex]$10,000 loan for one year with a 5% interest rate, the finance charge would be $[/tex]500. If the borrower extends the repayment to two years, the finance charge would increase to $1,000, doubling the original finance charge.
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