During such an interval, you have time to pay your credit without incurring interest during the grace period. For that, you need to pay your outstanding credit balance in full before the due date so you don't get charged for interest.Ĭredit card issuers offer a so-called grace period, a specific number of days when interest is not charged, often 44 to 55 days. The simplest way to reduce the finance charge is to avoid accruing interest on your balance. To sum up, the finance charge formula is the following:įinance charge = Carried unpaid balance × Annual Percentage Rate (APR) / 365 × Number of Days in Billing Cycle. Say you would like to know the finance charge of a credit card balance of 1,000 dollars with an APR of 18 percent and a billing cycle length of 30 days.Ĭalculate the daily interest rate (advanced mode):ĭaily interest rate = 0.18 / 365 = 0.00049315Ĭalculate the finance charge for a day (advanced mode):ĭaily finance charge = Carried unpaid balance × Daily interest rateĭaily finance charge = 1,000 × 0.00049315 = 0.49315.Ĭalculate the finance charge for a billing cycle:įinance charge = Daily finance charge × Number of Days in Billing Cycle Note that you can apply the present finance charge calculator for most of the above methods (except Daily Balance methods) – you only need to be careful when determining the balance you owe at the beginning of the computation.īy following the below steps, you can quickly estimate the finance charge on your credit card or any other type of financial instrument involving credit. Try to avoid credit card issuers that apply this method since it has the highest finance charge among the ones still in practice. Previous Balance: It uses the final balance of the last billing cycle in the calculation.

The Credit CARD Act of 2009 prohibits this practice in the US.Įnding Balance: The finance charge is based on your balance at the end of the current billing cycle. It is the most expensive method of finance charges. Since purchases are not included in the balance, this method results in the lowest finance charge.ĭouble Billing Cycle: It applies the average daily balance of the current and previous billing cycles. Credit card issuers may apply one of the six different methods to calculate finance charges.Īverage Daily Balance: This is the most common way, based on the average of what you owed each day in the billing cycle.ĭaily Balance: The credit card issuer calculates the finance charge on each day's balance with the daily interest rate.Īdjusted Balance: It subtracts your monthly payment from your opening balance.

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