Credit card interest calculations

F

fjgh15

Registered User
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I know this one isn't going to be easy and might lead to some arguments - but I'd dearly love to know exactly how credit card interest is calculated, and I do mean the exact formulae used, if at all possible. Any genius out there know this stuff?
Live long and Prosper.;)
 
I hate to say it at this time of night but ... have you read the terms & conditions and tariff of charges for your card?
 
I have, Clubman, and nope, no formulae there, that I can see - is there any on yours?
 
A credit card provider should quote an APR (e.g. on monthly statements) and that, along with knowledge of when interest charges apply to outstanding balances, should be all you need to calculate interest charges.

Have you checked the IFSRA website for details of their most recent credit card cost survey in case it helps? If all comes to all ask you card provider directly.

Of course the ideal situation is to clear your balance each month before interest applies thereby rendering the interest rate and charges moot.
 
Hi fhgh

I don't think it's that difficult. It's just time consuming. You should be able to request a breakdown of the interest charge from your credit card company so that you can check it.

check out [broken link removed]

Assuming that you don't pay off the bill on time, it will be something like the following.


January 1 Buy something for €100
January 10 receive statement
January 25 Payment due date
February 10 receive statement

Assume an APR of 15%

The interest for that particular item will be 41 days/365 days@14.5% or €1.63

The rate used for this calculation will be a little less than the APR but if you use the quoted APR, you won't be far out.

You need to repeat this for all transactions in the month.

The balance carried forward will be something like the following:

February 10: €600
February 27 €100 Payment made
March 10 interest added

600 @ 17 days @ 14.5%
€500 @ 11 days @14.5%
 
There are however companies that have started using Average Daily Balance for credit cards (Example: Ulster Bank)

Average Daily Balance.
It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."
 
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