Calculating card interest exactly ?

Kev64

Hi,

As part of my 'move all my money about' debt rescheduling, I'm going through my statements and it's annoying me that I can't seem to calculate the interest charged on my cards so that it matches what the card company are charging. Can anyone help me find out how I can calculate this exactly ? They must have a formula and I would like to replicate that in my spreadsheets.

e.g. Taking one month as an example,

Statement date is 18th of each month;

18th Aug Opening Balance: 7,809.11
2nd Sept Payment: 196.19
18th Sept Interest charged: 118.34 (at 1.527% per month).

There are no other transactions on the account at all. All the interest is at that rate, there are no partial balances on other rates etc. It's as plain as it can be.

Now, no matter how I juggle the numbers, I can't get to their figure of 118.34. I've tried dividing the monthly interest rate by 30 & 31 days & applying the interest daily to account for the slight drop after the payment on the 2nd, but however I do it, I can't get it to match their figure.

Can anyone offer any help please ?

(yes, I know it's insane to pay that much interest, but that's what you get for not setting up a reminder that a 0% deal is expiring. My mistake has cost me dearly.)

YorkshireBoy

Try this for daily interest calculations:

Closing balance x monthly rate x 12 / 365

If you've only had 2 balance figures through the month (the one before your payment and the one after it?), then just do the two calculations and multiply each by the number of days those balances existed. NB, for your information statements are produced at the end of the day and payments are credited at the start of the day.

I've had a play with your numbers and although I can't get the exact answer I can get to within a pound or so. Is that as close as you got?

Kev64

Yeah, I got it within about two quid, but your method of monthly rate x 12 / 365 gets me within £1.57 of their figure. Thanks for your help.

I think I'll email them and ask them to explain exactly how it's calculated.

I'm not holding out much hope of a sensible answer first off, but I will persist until I get it out of them !

Cheers !

YorkshireBoy

Kev64 wrote: »

I think I'll email them and ask them to explain exactly how it's calculated.

The bba website* used to have (still has?) examples of how savings interest was to be calculated/advertised. Maybe they have the same for credit card interest? Take a look?

* www.bba.org.uk

Nick68

I've absolutely no idea how mine is calcualted on my Lloyds TSB Mastercard, over the last few months with no real fluctuation in balance or interest rate, i've been charged £143, £119 last month and the estimated interest on the statement I got yesterday was for £133!!

I swear they are just plucking a figure out of the air, to see these fluctuations in monthly interest, i'd be expecting to see the balance increased/reduced by several hundred pounds.

I actually think this estimated months figure is the closest to what i'd expect on my monthly apr, I don't know if they just averaged out the previous two months.

Crazy!

Kev64

Well, I asked the card company and got this back.. " I'm not able to give you an exact breakdown. ".

I queried why, pointing out that if their computer system was programmed with the formula, then they obviously know it, and therefore it's perfectly possible to give it to me so I can use it in my spreadsheet.

I have now received another response from a different advisor stating "As previously confirmed we are not able to provide you with an exact breakdown of how your interest is calculated.

Interest is accrued daily on a transaction or balance from the date is made to the date it is paid off in full."

Now, call me old fashioned, but I think I'm entitled to know how they are coming up with the figures that I am having to pay. I think I will be taking this further.

Do you think I am legally entitled to know how the interest is calculated ?

nomoneytoday

It's open debt x interest rate / 365 x number of days at that balance.
If you have 2 months of zero balance that over rides the interest earned.

Budner

nomoneytoday wrote: »

It's open debt x interest rate / 365 x number of days at that balance.
If you have 2 months of zero balance that over rides the interest earned.

It's actually not, in most companies it's average daily balance x apr/365

YorkshireBoy

Budner wrote: »

It's actually not, in most companies it's average daily balance x apr/365

I think you'll find that they use the annual non-compounded rate, not the APR, as I said in post #2.

qmpete

I asked American Express for a breakdown, and got a pretty flimsy calculation in the post yesterday, basically saying it's the monthly rate divided by the number of days in the billing period multiplied by the "average daily balance".

I was quite surprised by this, as I had cleared all but £50 of the balance from my last bill, well before the payment due date, so I was expecting to only be charged interest on the £50 remaining balance. Clearly I was naive! I've now paid off the entire balance, but am continuing to spend on the card, so I'll see what they charge me next month!