Help me with Finance Charges ....

[andrews_dad]

I've never carried a balance on a credit card. Always paid in full on whatever was charged. Well .. that is about to change!! We've personally stimulated the economy by charging way too much this month, incuding two summer vacations and a bunch of home improvements. We normally don't live beyond our means but the home improvement was not expected and the 2nd vacation was not expected (family thing that was sprung upon us). So, I think I'll need to carry over a balance. If my APR is 9.8%, how much interest will accure and appear on my next bill? Say if I carry $1000 over on it?

If I pay the balance early in in the month online next month does that impact anything? In other words, does the interest increase daily? I am a novice to this so any help would be appreciated.

 

[rflorek]

I would think that it would depend upon the terms of your credit card. My credit card calculates interest based upon average daily balance including new purchases. I don't carry a balance, so I'm not quite sure how much the calculation would be. Sorry!

 

[msmayor]

The actual terms of agreement for your account govern how the interest is applied...but here's a rough estimate.

If your annual rate is 9.8%, then that's about 0.82% per month (1/12 of the annual rate).

On a $1,000 balance, that's about $8 in interest charges. Now realize that your account may have a minimum interest dollar amount that they charge, so if you see something like $10, that may be the minimum amount. Again, the terms you agreed to when the card was opened will govern.

 

[andrews_dad]

The actual terms of agreement for your account govern how the interest is applied...but here's a rough estimate.

If your annual rate is 9.8%, then that's about 0.82% per month (1/12 of the annual rate).

On a $1,000 balance, that's about $8 in interest charges. Now realize that your account may have a minimum interest dollar amount that they charge, so if you see something like $10, that may be the minimum amount. Again, the terms you agreed to when the card was opened will govern.

Only about $8 in interest? Whew! I was thinking 9.8% on $1000 would cost me about $98 a month!! Man, that is not bad at all. Perhaps I'll carry over a balance more often. Just kidding

 

[kool_kat]

However,

I believe most credit cards accrue on a daily interest, which would make that a little more than the $8.00 which was compounded on a monthly interest. Basically, each day they calculate the daily interest and add it on to your balance, so the next day you get to pay interest on your balance plus that previous day's calculated interest. Now, for the example of $1000 @ 9.8% this will not make a big difference as the daily interest calculated will be small, but it may be a little higher than the $8.00.

I usually don't carry a balance either but when I got out of college a few years ago, I had a little lapse before I got a job and did carry a balance. The interest was a lot higher than I thought it would be. The reason was is if you carry a balance you no longer get the "grace period" for new purchases. Usually, if you pay off the balance every month, you get a 25-30 day grace period to pay the balance off. However, if you carry a balance, you lose that grace period. So, if you charge something additional on that card, interest will begin to be charged for that purchase the day it is made. By the time you receive the bill, several days of interest may be charged on this new purchase.

Again, your specific credit card terms may vary from the above, but those are the usual types of terms.

Hope this helps!

 

[msmayor]

Only about $8 in interest? Whew! I was thinking 9.8% on $1000 would cost me about $98 a month!! Man, that is not bad at all. Perhaps I'll carry over a balance more often. Just kidding

$98 is indeed 9.8% of the balance...but remember the interest rate is ANNUAL...meaning that you'd pay that over the course of one year with an average balance of $1000.

And to the previous poster yes...the interest may indeed be compounded daily...but for the sake of estimation using a simple one-month calculation comes pretty close. Without knowing the specific terms of the cardholder agreement, this method is a good estimator.

 

[Livi'sMom]

Here's the formula for calculating finance charges.

APR / 365 x .01 x (number of days in cycle be it 30 or 365, etc..) x balance= finance charges for that time period.

That's about the closest way to actually calculate them. I work for a major bank's cc department and this would be the formula we teach. it may be off by a penny or two depending on the average daily balance, but it's usually accurate to the penny.

 

[Green Tea]

Yes, the earlier you pay the second month the lower the fee is. But as the earlier poster said, about $8, so it really isn't much of an issue. Mental issue yes, but actual monetary issue, no.

 

[daisy2jae]

your credit must be amazing with paying off your cards each month! Congrats on having such wonderful self control .... I find it hard at times !