This question is probably very stupid.. but as I almost always pif before it was even reported (or sometimes pif right after the statement cuts), I do not understand how the interest is calculated and when it starts to accumulate.
For example, on my Discover card, usually the "Payment Due Day" is on 15th. The "statement date (closing date)" is on the 20th.
On the period from Nov 21 - Dec 20, I have balance reported on Statement Date as $130. Minimum payment due day is Jan 15th.
So does it mean I have to pay off $130 by Jan 15th if I do not want to get charged by interests? (Or only the amount from Nov 15 to Dec 15? I would guess not, otherwise it will be tough to calculate how much excatly) Also, what if I make a payment on the Jan 15th? In that case, usually the payment is not posted until at least 1 day or 2 days later, is that considered paying on time??
Another question is that how is interest calculated? Let's say my minimum payment is $30 (so that it's easier to calculate) and I only made minimum payment by Jan 15th. And if I was right about the first question (the amount to be paid off to avoid the interest), $100 will be calculated interests. So when does it start to calcuate? On Jan 16th? My APR on Discover is 14.99%, and I heard that discover calculates interest by days, so on the 16th, the interest (not yet show on balance) charge is?? What would be the formula to that? $100 x 14.99% / 12 / 30?? and how about the next day 17th? it would be ($100 + A amount) x 14.99% / 12/ 30??? (A amount is the interest charge on 16th)..
Am I thinking it right? my question is kind of a mess.. But hopefully someone can help me out with this... thank you!!
@Christina_xyt wrote:This question is probably very stupid.. but as I almost always pif before it was even reported (or sometimes pif right after the statement cuts), I do not understand how the interest is calculated and when it starts to accumulate.
For example, on my Discover card, usually the "Payment Due Day" is on 15th. The "statement date (closing date)" is on the 20th.
On the period from Nov 21 - Dec 20, I have balance reported on Statement Date as $130. Minimum payment due day is Jan 15th.
So does it mean I have to pay off $130 by Jan 15th if I do not want to get charged by interests? (Or only the amount from Nov 15 to Dec 15? I would guess not, otherwise it will be tough to calculate how much excatly) Also, what if I make a payment on the Jan 15th? In that case, usually the payment is not posted until at least 1 day or 2 days later, is that considered paying on time??
Another question is that how is interest calculated? Let's say my minimum payment is $30 (so that it's easier to calculate) and I only made minimum payment by Jan 15th. And if I was right about the first question (the amount to be paid off to avoid the interest), $100 will be calculated interests. So when does it start to calcuate? On Jan 16th? My APR on Discover is 14.99%, and I heard that discover calculates interest by days, so on the 16th, the interest (not yet show on balance) charge is?? What would be the formula to that? $100 x 14.99% / 12 / 30?? and how about the next day 17th? it would be ($100 + A amount) x 14.99% / 12/ 30??? (A amount is the interest charge on 16th)..
Am I thinking it right? my question is kind of a mess.. But hopefully someone can help me out with this... thank you!!
First off your question is far from stupid. I just recently started learning about interest, because I was considering carrying a balance and like you I had always PIF in the past. I ended up not carrying the balance but that is besides the point.
First, yes unless you have a 0% APR you must pay the full balance due from your prior statement to avoid being hit with interest. So the $130 has to be completely paid otherwise interest starts running.
Now let's say you only make the minimum payment due. Your account will not be considered late because you made a payment. However, you will be charged interest on the $100 AND you will also be charged interest on any charges you have made between the time when your statement cut & your payment due date. Let's say this last cycle since your $130 statement cut you charged another $200 and you paid $30 minimum payment. Well in this situation you will lose your grace period and you will be charged interest on $300 ($100+$200). The interest will not stop until you PIF the $300.
I'm not sure every lender calculates interest in the same way, but they send you an agreement that explains how they do the interest calculation. For my cards at least it works out as daily interest. If your interest rate was 15% then out of a $100 you would be paying $15 a year total, but break that down by the day and you pay $.04 everyday you carry $100 balance.
Something I am not sure of is if you also pay interest on new charges that have cleared, but the statement has not cut yet. Update: ok from prior posts it looks like they take the average daily balance so then all new charges that have cleared get included in the interest calculation even though the statement has not cut for them yet.
;
@longtimelurker wrote:
The payment due date is the date that the (minimum) payment from the PREVIOUS statement is due. So in your case, if you pay $130 by Jan 15 you will owe no interest.. When it posts depends on various factors, but if you pay during the day from the issuer site, the payment is counted as being made that day (even though balances may not immediately update)
Interest calculations are more complex and can vary from issuer to issuer. But often average daily balance is used. So if you don't pay in full by Jan 15, you owe interest on your daily balance from Nov 21 onward. In one sense, you "owe" interest on every purchase, but it is all waived if you PIF by the due date.
So in your case if you had say a $15 balance on Nov 22, and another purchase drove it up to $100 on Nov 30 etc, they calculate how much interest you owe by using the daily APR and multiplying it by days with each balance.
Once you pay off the full amount including interest on the next statement, you often will STILL be charged a little interest on the next statement, because you still haven't paid everything off (So Feb 20 statement will include interest charges up to the date, but if you don't pay till say Feb 25, you will be charged interst for that period)
Oh wow I didn't know that if I don't pif before the due day, every purchase after that will be charged on interests..i thought there were some type of grace period.. like if the purchase is made after the statement date, it won't be calculated for interest until the next period (if not pif by then).. seems like that sort of grace period only exists when you pif each month..
and thanks everybody.. I think I understand a lot better now.. Didn't know about losing the grace period part at all in the past.. It's good to find this out in case one day I will have to carry a balance...
@Christina_xyt wrote:
Oh wow I didn't know that if I don't pif before the due day, every purchase after that will be charged on interests..i thought there were some type of grace period.. like if the purchase is made after the statement date, it won't be calculated for interest until the next period (if not pif by then).. seems like that sort of grace period only exists when you pif each month..
Yes, that is exactly it. I didn't know this either until like a week or two again and I have been coming here for over a year and a half!