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Valued Contributor
Posts: 1,673
Registered: ‎11-11-2012
0

Re: Credit Card Interest

So now I trying to understand the extended process.

 

Let's say that the statement cycle is Jan 1 - Jan 31.

I charge $5,000 on Jan 1st and nothing else.   My statement cuts Jan 31, and I have a payment due say Feb 21.  I pay $1,000 then.

 

So the consensus seems to be that in this simple case I pay interest on the whole $5,000 for the 31 days of Jan.   What happens in my Feb statement?

I assume I am charged interest on the $5,000 from Feb 1 to Feb 20, say, then again assuming no more transactions, my balance is $4,000 and for the remainder of Feb I pay interest on that?

 

 

Frequent Contributor
Posts: 496
Registered: ‎11-13-2012
0

Re: Credit Card Interest

Maybe I misunderstand the question, but each of my card statements include a section titled something like "HOW WE CALCULATE YOUR BALANCE AND INTEREST CHARGES".  


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Valued Contributor
Posts: 3,099
Registered: ‎10-02-2012
0

Re: Credit Card Interest

[ Edited ]

I have never paid interest, but I am just wondering how the bank calculates it. I can just PIF, but I an curious how they come up with the interest charges.

 

To be clear, this is the example:

$5000 charged, $2000 paid BEFORE statement cut, $2000 paid BEFORE due date, $1,000 carried. Assume linear charges and payments. No single big purchase and no single payment, just consistent charges and payments the whole time.

 

I might have to create a scenario like this and see what my bank charges me. I asked a banker, and he said in this example interest would only be charged on the $1000 balance, but I believe he is incorrect.

 

I think most credit cards use average daily balance.

 

I think this scenario would create an average daily balance of around $2,000. If the cycle is 31 days long with a 24 day grace period, then the billing period would be 55 days. At 15% the daily interest is 0.041%.

 

$2000*55*0.041%=$45.10

 

I would estimate the interest charge to be around $50 even though $1,000 is being carried.

 

To me that is ripping the customer off effectively charging a 60% APR on the $1000 carried.

 

Always PIF!

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