Credit card interest calculation?

Question

Hi - I'm in the UK. I had a credit card statement for £600 a couple of months ago. I paid £550, and the following month the credit card company charged me the full interest on £600. Is this normal?

I would of thought I'd get charged interest on the £50 outstanding.

Answer 1

Credit card companies generally use the average daily balance method for computing interest. The take the balance every day, add all the days up and divide by the number of days in the billing period.

On your bill should be a daily periodic rate the use to compute. They take that rate multiplied by the number of days in the billing period and multiply that by the average daily balance.

So, if you had a £600 pound balance and you paid the £550 two days before the statement close date, then you will be charged interest based mostly on that £600 balance since it was there for the majority of the time.

Also, if you paid the £550 after the statement closed then the payment will be reflected on next months bill.

I hope that helped you understand.

Answer 2

I'm not sure about the UK, but in the United States, the credit lending company usually averages the balance over the past 30 days and charges you the interest for that period, or there is another formula that is used where the credit card company charges you interest on the credit card balance on the 25 day after the billing cycle. If you waited till just prior to the due date to make the payment instead of paying it immediately upon receipt, the following month the interest you pay will be on a higher amount. It's just one of there little tricks to screw us out of more money and make it look like it's our fault.

Answer 3

It all depends on the terms of the credit card. Usually cards that require you to pay them off every month will charge you for the total instead of the outstanding balance.