How is interest on the unpaid balance calculated

Tucuman

Hello all

I have searched the net high and low but cannot find an answer I truly understand.  lets say I have a balance of 1000 and only pay off 900, how will that 100 be calculated?

I am new to credit cards and find all this very complicated.

Thanks all

eskbanker

Interest will be payable on the entire balance, not just the bit you didn't pay off.  This often seems unfair to those not realising that this is how it works, but the explanation works better the other way round, i.e. that interest is only waived if the balance is paid off in full.

If you're new to credit cards and therefore haven't had a chance to build up a balance, then try to ensure that you pay it off in full every month, or borrow at 0% interest.

Tucuman

eskbanker said:

Interest will be payable on the entire balance, not just the bit you didn't pay off.

Wow! So the interest will be on the 1000? Also, the interest is one payment that is added to next statment?

And a big thanks for taking the time to reply!

Tildaplum

Yes you get your statement let's say on the 1st of the month. Let's say the statement balance is £1000. It will also have a payment date by which you must pay at least the minimum payment, let's say 21 days later.

If, by the 21st, you haven't paid the FULL balance of £1000, you get charged interest on the whole £1000, not only back to the statement date but back to the date you purchased each item.

So even if you pay £999.50 by the 21st you still get the whole interest hit.

Tucuman

Tildaplum said:

Yes you get your statement let's say on the 1st of the month. Let's say the statement balance is £1000. It will also have a payment date by which you must pay at least the minimum payment, let's say 21 days later.

If, by the 21st, you haven't paid the FULL balance of £1000, you get charged interest on the whole £1000, not only back to the statement date but back to the date you purchased each item.

So even if you pay £999.50 by the 21st you still get the whole interest hit.

Cheers ! Thats was very clear. Now I am a little more enlightened to these crooks Used wisley i suppose it has its pros

eskbanker

Tucuman said:
these crooks

You mean the ones who are prepared to lend you money (subject to your explicit acceptance of published terms and conditions explaining repayments and interest)?  The true definition of evil....

Tucuman

eskbanker said:

You mean the ones who are prepared to lend you money (subject to your explicit acceptance of published terms and conditions explaining repayments and interest)?  The true definition of evil....

Yes, those very ones (who make brain straining, tounge twisting and very complicated sentences, which they spin into terms and agreements,which has the customers brain in overload. Not tho mention the maths!)  

Alexd52

Tucuman said:

eskbanker said:

You mean the ones who are prepared to lend you money (subject to your explicit acceptance of published terms and conditions explaining repayments and interest)?  The true definition of evil....

Yes, those very ones (who make brain straining, tounge twisting and very complicated sentences, which they spin into terms and agreements,which has the customers brain in overload. Not tho mention the maths!)  

It's actually simple, they lend you money, you pay interest at the advised rate. If you pay in full every month, they generously waive the interest so you have free borrowing in this instance.

Tucuman

Alexd52 said:

It's actually simple, they lend you money, you pay interest at the advised rate. If you pay in full every month, they generously waive the interest so you have free borrowing in this instance.

Simple? There is 21.1 K posts about credit cards in this forum. Simple ....

redux

The interest is proportional to both amount and the time borrowed for.

Thus if you wait until the due date defined on the statement some of the oldest new appeared spending may be up to 8 weeks old, and the interest might seem to be more than a month's worth.

If you aren't confident in being able to pay off in full, nothing stops you cutting the interest slightly by paying a bit earlier than the due date, as soon as funds become available, or making more than one payment.

Similar reasoning applies if you've had interest one month but then know you can clear in full by the next deadline. Reduce interest a bit by paying back part early, leaving only the new items by the due date. However, some cards unofficially waive all the interest as long as the statement balance comes in on time.

Nebulous2

If you take the time to understand it and follow a few simple rules they will lend you thousands, or even 10s of thousands, completely free for prolonged periods of time.

Unless you are desperate, try to pay off an interest-bearing card in full and on time, every month.