Credit Cards

[Dustink]

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. 

[jsucool76]

Im not entirely sure myself, I've never been charged interest, but I think by law your lender must put a minimum payment warning on your statement. Something that says "if you pay only the min. payment, you will pay for x months, a total of $x.xx, and $x.xx in interest" might help you to figure it out.

[firstladyd]

I think they try to keep it confusing which is why I try to pay off asap.

[shakalaka]

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.

[youngandcreditwrthy]

I'm fairly certain you will pay interest on the "average daily balance" which is calculated daily.
So
If you paid $2000 on a $5000 balance, say...in the very middle of the month... You'd prob pay interest on the average daily balance of $3500(1/2 between $2k&5k). This is a wild guess btw.

I am saying this bc Barclay's recently charged me interest this way.

[SnackTrader]

Just as young said above, it is typically the average daily balance method, but there are other methods that can be used if the creditor discloses, I believe. So on all items past their grace period and cash advances immediately, the average balance at the end of the banking day (correct me if I'm wrong there) is recorded, and averaged at the end of the month and multiplied by the interest rate in a monthly fashion. It's a rather difficult calculation to make by yourself without the exact same information your lender is using.

There are detailed explanations of this within each card's disclosures.

[Wolf3]

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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. 

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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.

[trumpet-205]

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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.

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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.

[Wolf3]

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trumpet-205 wrote:

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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.

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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.

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I doubt any consumer CC would base it on $5000.   Do you know of any who do.

[Wolf3]

By my calculations, it can vary from approximately $13 to $98 based on timing of charges and payments.