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## Credit Card Interest

Valued Contributor

## 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?

Message 11 of 13
Frequent Contributor

## 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".

`GangnamFICO wrote:Because the chicks dig it when I throw down the card to the waiter and...it comes in handy if I'm short on cash until payday and need a short spot. AMEX gets the booty, and that's important when you're a Pirate.Minor vulgarity edit --Rev`
Message 12 of 13
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Valued Contributor

## Re: Credit Card Interest

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!

Too many INQs & low AAoA so I'm off to tend the Garden.     Age:23

\$17k       \$8.5K          Closed          \$19k      \$6.5k        \$24.2k        Closed         \$5k       Closed     \$8.5k        Closed      @2.49%
Message 13 of 13