How does a credit card interest work? Please answer this?

Question

i understand when u use ur card to make purchases u either have the option of paying in full b4 the due date or paying a minimum so if im paying the minimum of the balance on the card when am i charged interest? i know abt late charges and overlimit charges but when does a customer get charged interest on purchases and cash advances?

if i manage to pay the full balance before the due date do i have to pay interest?

if i manage to pay the full balance before the due date do i have to pay interest?

Answer 1

Good question. The answer isn't always simple, because purchases and cash advances can trigger different interest calculations, and cards differ in how they calculate interest and in the lengths of their grace periods.

I'll try to explain. First, if you pay off your balance every month, then you have a "grace period" -- a certain number of days when no interest is charged. It used to be that the grace period averaged 28 days. Now, it's down to about 21 days, so you have less time nowadays to use your card issuers' money interest-free.

If you carry a balance, then the most-common way to charge you interest is the "average daily balance" method. It's like it sounds -- the card issuer looks at the how much you owed them each day, which of course can go up or down, depending on your payments and how many times you bought shoes or paid for a round at your neighborhood tavern. They average out the amount owed, and multiply it by your interest rate.

Beware if your credit card company charges you on a "two-cycle" billing basis. That's a consumer-hostile way to calculate interest, because the formula reaches back two months, so if you carried a balance two months ago, you get whacked with an interest charge, even if you paid off your balance last month.

Cash advances are different. They don't have a grace period. Cash advances have interest charged from the instant that the ATM spits out those twenties.

As always, your card issuer contract -- you know, that document with the tiny tiny type -- sets the rules. If you lost it or threw it out, call 'em up and ask for another.

I hope that helps.

Answer 2

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Answer 3

Most often, today, from the day the purchase is posted to the card. From then on, daily interest is calculated.
Also, a fee is often tacked on to the original amount of purchase.

Answer 4

You get charged interest monthly. Its better to pay it off as soon as possible because you end up saving money in the long run...

Answer 5

http://www.credit-cards-info.com/