How does credit card interest work?
Apr 18, 2009, 4:31 pm
#1
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Posts: 263
How does credit card interest work?
Say I have a $10,000 balance due May 1'st. I pay $9000 before May 1'st and the remaining $1000 on May 2'nd.
Do I owe interest for the $1000 based on 1 day or 31 days ( i.e days since the previous statement )?
Do I owe interest for the $1000 based on 1 day or 31 days ( i.e days since the previous statement )?
Apr 18, 2009, 4:40 pm
#2
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Wirelessly posted (goingaway's phone: BlackBerry8900/4.6.1.114 Profile/MIDP-2.0 Configuration/CLDC-1.1 VendorID/100)
31 days and you will also pay interest on the other funds from the cycle start until it was paid off. Basically by missing the due date or carrying a balance all purchases become subject to interest charges. If someone understands differently, pls post but this my understanding.
31 days and you will also pay interest on the other funds from the cycle start until it was paid off. Basically by missing the due date or carrying a balance all purchases become subject to interest charges. If someone understands differently, pls post but this my understanding.
Apr 18, 2009, 4:42 pm
#3
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The interests INCURRED on the date of you made a purchase - it is the credit extended to you. However, the incurred and ACCRUED interest will be WAIVED, if you pay the statement balance in FULL on the due date. The accrued process is done but the accrued interest amount would not show, if you pay in FULL from the first statement, and on every subsequent statement.
Read the small print and DETAILED (but not very easy to understand) conditions on HOW THE INTERESTS ARE CALCULATED, and under what conditions such are waived.
There is also a practice called Double Cycle Billing or similar name. Google it to learn more. Though I believe the large issuers have dropped such practice after a big Congressional investigation last year.
Apr 18, 2009, 4:54 pm
#5
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not only the $10K, but any new item you charged on the card after the statement cycle which the $10K is charged.
Apr 18, 2009, 5:19 pm
#6
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The interests INCURRED on the date of you made a purchase - it is the credit extended to you. However, the incurred and ACCRUED interest will be WAIVED, if you pay the statement balance in FULL on the due date. The accrued process is done but the accrued interest amount would not show, if you pay in FULL from the first statement, and on every subsequent statement.
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Apr 18, 2009, 7:22 pm
#7
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Apr 18, 2009, 9:13 pm
#8
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I am doing a service here to explain the mechanism in layman's language.
Exactly.
People often misunderstand how the grace period work because they dont bother to understand the T&Cs. Incidentally, almost all major issuers have same T&Cs, with slight difference in the level of fees / cap of interest rates / method of calulating interest (from date of posting, or from date of transaction)... They also tend to miss the keywords Pay in Full - with FULL being emphasized!
You lose the grace period the moment you dont pay in full. Plain and Simple. Good for the OP to ask a question instead of assuming the "grace period" while having no knowledge how it works.
Apr 19, 2009, 3:43 pm
#9
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Ok - say after not paying in full for a month or so, getting charged interest, and then paying everything off in full - do you then have your 'grace period' of waived interest back? Or is that grace period gone forever because you were didn't fully pay one month?
Apr 19, 2009, 3:47 pm
#10
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Apr 19, 2009, 4:05 pm
#11
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However, there is the persky issue of the finance charge itself - the problem with it is, the finance charge is not calculated until statement date, but by the time you see the finance charge of the previous statement, you already are late in paying back the finance charge. So the finance charge seems to take on a life of its own, to snowballing...
Personally I have never carried a balance, so I cannot say from experience how it works when you carry balance on one statement then you try to return to the pay in full status - how long it takes to get everything back to before the cycle you carried balance. The information I came accross, seems to indicate that you STOP using the card from the month you carry balance. Then pay in full when you can. Wait for the next cycle to make sure there is no more finance charge, before you start using that card again...
I believe it has to do with the Double Billing Cycle Calculation practice which supposedly the issuers have slowly stopped employing that after the Congressional investigation 2 years ago.
Apr 19, 2009, 7:15 pm
#12
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You get it back.
However, there is the persky issue of the finance charge itself - the problem with it is, the finance charge is not calculated until statement date, but by the time you see the finance charge of the previous statement, you already are late in paying back the finance charge. So the finance charge seems to take on a life of its own, to snowballing...
Personally I have never carried a balance, so I cannot say from experience how it works when you carry balance on one statement then you try to return to the pay in full status - how long it takes to get everything back to before the cycle you carried balance. The information I came accross, seems to indicate that you STOP using the card from the month you carry balance. Then pay in full when you can. Wait for the next cycle to make sure there is no more finance charge, before you start using that card again...
I believe it has to do with the Double Billing Cycle Calculation practice which supposedly the issuers have slowly stopped employing that after the Congressional investigation 2 years ago.
However, there is the persky issue of the finance charge itself - the problem with it is, the finance charge is not calculated until statement date, but by the time you see the finance charge of the previous statement, you already are late in paying back the finance charge. So the finance charge seems to take on a life of its own, to snowballing...
Personally I have never carried a balance, so I cannot say from experience how it works when you carry balance on one statement then you try to return to the pay in full status - how long it takes to get everything back to before the cycle you carried balance. The information I came accross, seems to indicate that you STOP using the card from the month you carry balance. Then pay in full when you can. Wait for the next cycle to make sure there is no more finance charge, before you start using that card again...
I believe it has to do with the Double Billing Cycle Calculation practice which supposedly the issuers have slowly stopped employing that after the Congressional investigation 2 years ago.
The double billing cycle will be eliminated 7/1/10... thats just one of the many changes coming.
Apr 22, 2009, 2:30 pm
#13
Join Date: Nov 2008
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You owe interest on the ENTIRE balance as well as ANY NEW CHARGES YOU PUT ON from the previous statement, from the date you incur the amount (each and every purchase) - that is NOT the statement date, nor the balance due date.
The interests INCURRED on the date of you made a purchase - it is the credit extended to you. However, the incurred and ACCRUED interest will be WAIVED, if you pay the statement balance in FULL on the due date. The accrued process is done but the accrued interest amount would not show, if you pay in FULL from the first statement, and on every subsequent statement.
Read the small print and DETAILED (but not very easy to understand) conditions on HOW THE INTERESTS ARE CALCULATED, and under what conditions such are waived.
There is also a practice called Double Cycle Billing or similar name. Google it to learn more. Though I believe the large issuers have dropped such practice after a big Congressional investigation last year.
The interests INCURRED on the date of you made a purchase - it is the credit extended to you. However, the incurred and ACCRUED interest will be WAIVED, if you pay the statement balance in FULL on the due date. The accrued process is done but the accrued interest amount would not show, if you pay in FULL from the first statement, and on every subsequent statement.
Read the small print and DETAILED (but not very easy to understand) conditions on HOW THE INTERESTS ARE CALCULATED, and under what conditions such are waived.
There is also a practice called Double Cycle Billing or similar name. Google it to learn more. Though I believe the large issuers have dropped such practice after a big Congressional investigation last year.
Apr 26, 2009, 12:42 pm
#14
Join Date: Apr 2009
Posts: 166
Please forgive my ignorance, but is it correct that if I pay my balance off completely each month I will not be charged interest? Or do I pay interest on everything that is charged to the card, regardless of whether it's paid off each month?
Apr 26, 2009, 1:30 pm
#15
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(I suppose a credit card could lack a grace period in theory--but I've never seen one. Also, interest accumulates immediately on balance transfers, cash advances, convenience checks, etc.)