If someone keeps using the card without the entire balance being paid off, is interest calculated on the whole amount?
In: Mathematics
Yes, or rather, whatever the statement balance is at the time of calculation.
If you have a 24% interest card, it’ll increase your balance by 2% every month. (24% per year).
interest is applied to whatever balance exists at the end of the billing cycle…..
so if you put $10/day on the card and pay off 10/day you wont have any interest applied
if you put 10/day on the card and pay off everything on the last day of the cycle you wont have any interest applied
if you 10/day on the card and only pay 1/2 on the last day……youll be charged interest on the balance…….and next month you start with **what you didnt pay + interest**
Different credit cards charge it different ways, so there’s no one-size-fits-all answer.
But *generally speaking*:
1. Any interest only applies to an unpaid balance. If you pay your balance in full, no interest is generated.
2. Interest kicks in once that unpaid balance occurs. This will depend on your due date. Most cards have roughly 21 days after your billing date, and usually a few days of grace, because any owed money is classified as “unpaid”. This adds on to any existing balance that isn’t paid.
3. Unpaid balances are usually then calculated on a daily rate, called the Daily Periodic Rate, which is a function of your Annual Percentage Rate (usually divided by 360 or 365). For example, if your APR is 24% (that’s the number you’d usually see when signing up for a credit card) your DPR is .065%.
4. Every day you don’t pay off an unpaid balance, you gain interest owed. In the example above, if you have a $1000 outstanding balance, every day you pay $.65. However, it compounds, so you’d add $.65 every day and then calculate the interest on $1000.65 instead, and then the next day 1001.30, and so on. You’d have to pay roughly $21 or so if you left that balance go for the whole month.
5. Not all credit cards do it daily–some average your balance through the 30 days of your billing cycle and apply it once a month.
Whatever remains from the statement balance after your payment due date gets charged interest. The interest usually gets compounded daily. That means on day 1 after your due date you’ll get charged the APR divided by 365 days as a percentage of your statement balance and that interest is added immediately to the principal the next day to be charged another day’s worth of interest. Whatever credit you use after your statement comes, won’t be added to the principal for the interest calculation until your next statement due date.
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