Understanding PIF to avoid interests

[Plasticard]

Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full. 

[Anonymous]

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@Plasticard wrote:

Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full. 

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OK, maybe I am wrong, but I still don't think that is true!   This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge.   So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.

2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!

[Chris679]

Most credit cards use average daily balance to calculate interest if you do not pay the full statement balance by the due date. Since you did not do that you will pay interest on that for last month plus you no longer have a grace period on new purchases for this month so they count towards the ADB for your next statement.

[NoAnchoviesPlease]

How about if your payments during the month add up to the previous statement balance, but you charge during the current statement period as well? 

i.e. March 1 statement balance is $2k.

Payment due date is 24th.

Pay $500 each week (payments posted on 1st, 8th, 15th, 22nd)

Charge $300 that's posted on the 20th. 

Do you get the benefit of the doubt? 

[Plasticard]

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@Anonymous wrote:

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@Plasticard wrote:

Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full. 

---

OK, maybe I am wrong, but I still don't think that is true!   This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge.   So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.

2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!

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When looking at monthly statements, there's always the section listing "amount subject to interest rate". This is any amount that wasn't paid from the prior month's statement. Keep in mind this won't include new purchases for that months statement. So keeping a balance from a previous month doesn't remove the grace period to pay without interest for purchases in the new statement, but only charges you interest on what you didn't pay in full from the month before. 

[Chris679]

That is not correct. No PIF=no grace period for anything.

[Chris679]

Just pulled this off Discover website to clear up confusion. Exact same for Cap One

Finance Charge
A grace period is the amount of time from the date of the purchase to the date payment in full is due, during which you will not incur finance charges on your purchases. The length of a grace period varies from card to card, but it is commonly about 20 days. If you do not pay your bill in full, then you will not receive an interest-free grace period on future purchases.

Most credit cards do not provide a grace period on cash advances or balance transfers, so interest is assessed from the date of each of these transactions.

Method of Computing the Balance for Purchases
This is how transactions are added to calculate a cardholder's monthly balance. If the method is “average daily balance,” that means that each day's transactions are added to a running total, which is then divided by the total number of days in the billing cycle.

[bada_bing]

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@Plasticard wrote:

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@Anonymous wrote:

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@Plasticard wrote:

Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full. 

---

OK, maybe I am wrong, but I still don't think that is true!   This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge.   So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.

2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!

---

When looking at monthly statements, there's always the section listing "amount subject to interest rate". This is any amount that wasn't paid from the prior month's statement. Keep in mind this won't include new purchases for that months statement. So keeping a balance from a previous month doesn't remove the grace period to pay without interest for purchases in the new statement, but only charges you interest on what you didn't pay in full from the month before. 

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That isn't universally or generally true. It's important to remember that different credit cards

have different terms and conditions, so there is no absolute universal right answer. In most

cases I'm aware of, carrying a balance from the previous statement past the due date results

in a loss of the grace period (which not all cards have). You will pay interest on charges as they

are posted the following month and until you PIF a statement balance by it's due date to

reinstate the grace period. As an example, the wording from the Chase Freedom T&C:

How We Will Calculate Your Balance: We use the daily balance method (including new transactions).

That is why it is generally a bad deal to carry even a small balance, because the effective costs are

much greater than the stated interest rate, they include loosing the interest free grace period on

new charges.

Edit: Crap, I'm slow. Chris679 got 2 posts up while I fidgetted around saying basically the same thing.

[Chris679]

You hit on a great point though in that there is no universal rule but the major companies all use this method.

[Chris679]

My CU card will not charge interest if you PIF even if you rolled a balance over from the previous month. Almost all cards would hit you with residual interest.