Credit card interest...

[MastaTam]

I just heard that if you, say, charge $500 on a credit card, and pay only $250, you'll still be charged interest on the whole $500. Is this true? I've heard that almost all credit card companies do this. This sounds incredibly unfair, which is why I'm questioning this.

 

[NogginBoink]

Read the fine print on your cardholder agreement. There are several formulas.

Most give you 30 day grace period on new purchases.

Some calculate interest on "two cycle average daily balance." That two cycles is the killer. That would include the average daily balance from last month with the full $500, I believe.

Try www.creditnet.com for more answers.

 

[RossMAN]

Originally posted by: MastaTam
I just heard that if you, say, charge $500 on a credit card, and pay only $250, you'll still be charged interest on the whole $500. Is this true? I've heard that almost all credit card companies do this. This sounds incredibly unfair, which is why I'm questioning this.

If you do not make your payment in full ($500) you are charged interest. The interest is calculated based on your ADB (average daily balance).

Your ADB is calculated by adding your balance every day for 30 days (billing cycle) divided by 30 days = ADB

ADB x APR / 365 x 12 = interest (something like that, I would need a cc bill with me to calculate it correctly).

So let's assume the following scenario:

May 5 $0 balance
May 6 $0 balance
May 7 $0 balance
May 8 $0 balance
May 9 $0 balance
May 10 $0 balance
May 11 $0 balance
May 12 $0 balance
May 13 $0 balance
May 14 $0 balance
May 15 $0 balance
May 16 $0 balance
May 17 $0 balance
May 18 $0 balance
May 19 $0 balance
May 20 $0 balance
May 21 $500 balance
May 22 $500 balance
May 23 $500 balance
May 24 $500 balance
May 25 $500 balance
May 26 $500 balance
May 27 $500 balance
May 28 $500 balance
May 29 $500 balance
May 30 $500 balance
May 31 $500 balance
June 1 $500 balance
June 2 $500 balance
June 3 $500 balance
June 4 $500 balance
June 5 $500 balance

So you will not be charged interest on the full $500 because that is not your ADB.

$0 x 14 days = $0
$500 x 16 = $8000
========================
$8,000 / 30 day billing cycle = $266.67 ADB

So your interest charges are based on a balance of $266.67 ADB not $500