If someone keeps using the card without the entire balance being paid off, is interest calculated on the whole amount?
In: Mathematics
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.
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