topic Re: Trailing Interest Question in Credit Cards

Trailing Interest Question

sportsguy83 — Thu, 28 Apr 2022 15:50:38 GMT

So I recently paid off some cards. I know that when the statements cut I will have some trailing interest that accrued before payoff. I think I understand how this works but my question is once I pay off that interest can I then charge against the card immediately without accruing new interest or do I need to wait for the next statement to cut?

Example: Capital One statement cuts on the 30th, trailing interest is paid on the 1st, I charge the card on the 5th.

Under this scenario no interest will be accrued when the next statement cuts?

Re: Trailing Interest Question

Aim_High — Thu, 28 Apr 2022 19:25:48 GMT

@sportsguy83 wrote:
So I recently paid off some cards. I know that when the statements cut I will have some trailing interest that accrued before payoff. I think I understand how this works but my question is once I pay off that interest can I then charge against the card immediately without accruing new interest or do I need to wait for the next statement to cut?

Example: Capital One statement cuts on the 30th, trailing interest is paid on the 1st, I charge the card on the 5th.

Under this scenario no interest will be accrued when the next statement cuts?

That should be generally true, @sportsguy83 with a couple of caveats. I'm assuming that in that scenario that the card was paid off two months ago and the trailing interest is the only new charge?

Calculations of factors such as interest due may vary between lenders. We can make statements about general practices but there may be variations.
Remember that once you carry a charge, you've lost your grace period. So that residual interest that posts on your statement may also be accruing interest on a daily basis until it is paid. In your example, by paying the trailing interest the day after the statement cut, you may be able to circumvent most if not all of any additional charge but you might be charged a day or two of interest based on when the payment is credited. It may only be a few cents, but it could keep the prior balance from being "paid-in-full."
Before you use the card again, you'll want to make sure the lender credits the payment to your account and it shows $0.00 balance.
To be safe, it's wise to call customer service and ask for them to give you the "Payoff Amount" as-of the date of payment.
To be safe, it's not a bad idea when you've been carrying charges to give that card a month of rest after paying it off to make sure the statement cuts a final zero balance.
If nothing else, I would suggest calculating your estimated additional trailing interest due on the last payment and adding it to your payment. You can calculate that by dividing the annual APR on the card by 365 to get a daily APR rate, then multiplying that by the last statement balance to see what your daily interest charges should be. Example: last statement cut at $10.00 final trailing interest. APR = 18% so 0.18/365 = 0.00049315. $10 x 0.00049315 = 0.00493151 or about a half cent per day. Again, this may be inconsequential but it may not. It depends on the amount due and lender practices. Let's take an example where you're trying to pay off a larger balance to include the accumulated trailing interest. If you were carrying $5K on the same card and wanted to pay off 15 days of additional trailing interest after the last statement cut for which you were not yet billed, your daily rate would be $2.46575 rounded up to $2.47 ($5000 x 0.00049315) x 15 days = approximately $37.05.

But yes, if you pay off the entire accumulated trailing interest, you should be okay to use that card under most circumstances while avoiding additional interest charges.

Re: Trailing Interest Question

sportsguy83 — Thu, 28 Apr 2022 19:18:39 GMT

Thanks for the all the very detailed informatioin @Aim_High! I think to be safe I'll use another card until the statement cuts.

@Aim_High wrote:
I'm assuming that in that scenario that the card was paid off two months ago and the trailing interest is the only new charge?

The card was paid off on the 22nd. Using the Cap1 example again, when the statement cuts on the 30th the only new charges will be the acrued interest from the 1st to 22nd.

Re: Trailing Interest Question

Aim_High — Thu, 28 Apr 2022 19:58:15 GMT

@sportsguy83 wrote:
Thanks for the all the very detailed informatioin @Aim_High! I think to be safe I'll use another card until the statement cuts.

@Aim_High wrote:
I'm assuming that in that scenario that the card was paid off two months ago and the trailing interest is the only new charge?
The card was paid off on the 22nd. Using the Cap1 example again, when the statement cuts on the 30th the only new charges will be the acrued interest from the 1st to 22nd.

That's correct. This is where, though, that the payoff amount and resetting your grace period may vary somewhat based on the balance, payments, interest, and lender's policies. Yes, you're charged interest from the 1st to the 22nd. With most lenders in this situation, your new trailing interest would be posted to your account eight days later on the statement cut date but that debt still exists in between; it's just not showing on the website yet. The general guidance at the Consumer Finance Protection Bureau is that "If you pay in full some months, and not in other months, you may lose your grace period for the month that you don’t pay in full and for the month after." (But the exact calculations depend on the lender's disclosures.)

I looked at Capital One's website and they state the following about their grace periods:

As long as you’ve paid your previous balance in full by the due date each month, the grace period for Capital One consumer credit cards includes both:

The time from purchase until the end of the billing cycle.
At least 25 days from the end of each billing cycle until the payment due date

In this case, it sounds like if you paid the total amount due on the 22nd, then made one additional payment of the total amount of trailing interest due on the 1st, that would reset your grace period with them for using the card the following month. However, as the CFPB website states, it's safer to assume you may have lost the grace period for 30 days after paying off a card to avoid any surprises. That's why we usually recommend this since lender practices may vary.

Some lenders might charge the trailing interest from the 1st to the 22nd and then also add additional interest on your statement balance on the 30th to include the daily interest due from the 23rd to the 30th on that trailing interest you owe them. And then would continue to charge daily interest until you pay off the total due. This is why I suggested its a safe idea to call the lender and ask for an exact payoff amount as-of a particular date before you make a payment.

Re: Trailing Interest Question

NRB525 — Fri, 29 Apr 2022 13:02:20 GMT

With Capitol One, my experience was that if I paid the balance to zero prior to the payment due date, I had zero trailing interest in that next statement that printed. I regularly moved $500 to this card, with a 10.9% fixed APR, saw no interest cost in the first month, interest cost in the second month as there was a second month of balance remaining, and no interest in the third and final month because I had paid it to zero that month.

Fun fact: these regular BT's ( up to four cycles per year ) we're not enough to prevent the CLD from a $10k limit to a $5k limit in 2020. Card is now closed by user.