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How is credit card interest calculated?
Example:
$5,000 in purchases with no prior balance from the previous month
$2,000 in payments before the end of the cycle creating a $3000 statement balance
$2000 in payments creating a $1,000 carried balance
At 15% what would the interest charged be?
Would it be the monthly rate of 1.25% multiplied by the $1,000 carried balance? Interest charges around $12.50
Or would the bank waive any grace period and charge a 0.04% daily rate. Meaning whatever the balance is on any given day during the entire month and grace period gets charged interest? This would result in interest charges of over $50 for just one billing cycle.
Thoughts?
If we can't come up with a solution, I might have to try it for just one month to see what happens.
AFAIK the grace period is waved if you did not PIF by the due date. So interest (for the remaining part) will happen from date of purchase. Normally it is calculated on a day to day base. You should check the terms of the card. It should be in there.
@Dustink wrote:How is credit card interest calculated?
Example:
$5,000 in purchases with no prior balance from the previous month
$2,000 in payments before the end of the cycle creating a $3000 statement balance
$2000 in payments creating a $1,000 carried balance
At 15% what would the interest charged be?
Would it be the monthly rate of 1.25% multiplied by the $1,000 carried balance? Interest charges around $12.50
Or would the bank waive any grace period and charge a 0.04% daily rate. Meaning whatever the balance is on any given day during the entire month and grace period gets charged interest? This would result in interest charges of over $50 for just one billing cycle.
Thoughts?
If we can't come up with a solution, I might have to try it for just one month to see what happens.
SInce you did not PIF, there is no grace period. Interest is charged on the Average Daily Balance from date of first charge. Typically they use the Average Daily Balance times the Daily rate (!5%/3 65) times number of days in the statement cycle.
So your example can not be calculated without knowing dates of charges and payments. Your ADB could vary from $2000 to $4000 based on how quickly you charged and paid.
@shakalaka wrote:AFAIK the grace period is waved if you did not PIF by the due date. So interest (for the remaining part) will happen from date of purchase. Normally it is calculated on a day to day base. You should check the terms of the card. It should be in there.
Two methods exist, one is based on original purchase amount (In OP scenario, it will be based on $5,000)
The other is average daily balace method.
@trumpet-205 wrote:
@shakalaka wrote:AFAIK the grace period is waved if you did not PIF by the due date. So interest (for the remaining part) will happen from date of purchase. Normally it is calculated on a day to day base. You should check the terms of the card. It should be in there.
Two methods exist, one is based on original purchase amount (In OP scenario, it will be based on $5,000)
The other is average daily balace method.
I doubt any consumer CC would base it on $5000. Do you know of any who do.
By my calculations, it can vary from approximately $13 to $98 based on timing of charges and payments.