Tag Archive | “actual balance”

Costs and Fees: How Finance Charges are Figured?

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Surely, you have to pay the finance charge on your bill, but have you ever thought that how the credit card company arrives at the number?

Here you can check out four of the most common methods that are used to calculate finance charges. But I must warn you that the method alone only tells you a part of the story. To make sure that you are getting the best deal on a card, you should ask the company that how the company calculates the charges and whether they calculate interest on a daily or monthly basis. You should also find out if there is a grace period for new purchases. And have the company explained you that when and how your monthly payments are applied.


Calculation Methods

Type of balance: Average daily balance

How is it calculated: The company take out the average of your daily balance. For example, if you have charged $100 on 1st June and again charged an additional $200 on the 16th, then your average daily balance would be $200. That number is roughly one-twelfth your annual percentage rate, or APR, equals your monthly finance charge. The card company may calculate an interest on a daily or monthly basis.

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September 2011
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