From my understanding the majority of credit card interest is considered simple interest (google told me). My wife has a credit card that has trailing interest, can anyone please help me understand what this is exactly?
What I have gathered the trailing interest calculates after the close of that current billing period and beginning of the next. However, I hardly understand the simple interest to be honest. I am mostly looking for a numerical comparison explanation to actually see and understand.
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Trailing interest is the interest between when you get the bill, and when you pay the bill.
The way simple interest works is, if I give you a loan of $20 with 5% interest per day, after 1 day you’ll owe 1.05 x 20 = 21. After 2 days, you’ll owe 1.05 x 21 = 22.05. After 3 days, you’ll owe 1.05 x 22.05 = 23.15. And so on and so forth, until you pay it.
So with trailing interest – imagine on day 1, I send you a bill for $21. Because on Day 1 that’s how much you owe. You pay me $21 on Day 3. But by Day 3, you owe $23.15, which is an extra $2.15 than your bill said. That $2.15 interest that accrued before you paid it, is trailing interest.
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