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#12093

Jake (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis
I just received terms & conditions for an Amex credit card. They say interest will be calculated on a daily basis. Is this normal for credit cards? Thanks Jake

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#12094

DP (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis

I just received terms & conditions for an Amex credit card. They say interest will be calculated on a daily basis. Is this normal for credit cards? Yes. If you don't pay off your balance. The theory falls apart if: you pay off the full balance after paying the minimum for a few months (most, but not all, will add no more interest for the period between the statement date and the payment) or you pay off the full balance every month (most will charge no interest) or you make the minimum payment on time, then pay the balance after the due date. You could well be over charged a full months interest for this one. Btw to calculate the daily rate you don't divide by 365. To get the daily rate, divide the annual % rate by 100, add 1, take the 365th root, subtract 1 then multiply by 100. So an annual rate of 23.4% gives a daily rate of 0.0576%.

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#12095

Robin Cox (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis

rate, divide the annual % rate by 100, add 1, take the 365th root, subtract 1 then multiply by 100. So an annual rate of 23.4% gives a daily rate of 0.0576%. Having obtained correct breakdowns of interest charged from a couple of CC providers (which is as easy as getting blood from a stone) I don't believe you are correct. Taking the 365th root would only be necessary if interest was compounded daily, when it is usually compounded monthly, even though calculated on the daily debit balance. The simplest way to calculate the daily rate is to ignore the APR figure, which is a contrivance anyway, take the monthly rate as shown on the statement or in the T&Cs and multiply by 12/365. In my experience, most CC call centre staff and customer service people, when asked what the daily rate is will divide the APR by 365. Robin

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#12096

john boyle (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis

Btw to calculate the daily rate you don't divide by 365. To get the daily rate, divide the annual % rate by 100, add 1, take the 365th root, subtract 1 then multiply by 100. So an annual rate of 23.4% gives a daily rate of 0.0576%. Are you sure? The interest only compounds monthly you know, not daily. Also be aware that many Amex cards also charge an annual fee and that is included in the APR. Amex also quote a monthly fee and that CAN be divided by the number days in the month but I cant remember if they use 30 or 31 days

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#12097

Ronald Raygun (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis
Also be aware that many Amex cards also charge an annual fee and that is included in the APR. You can't include the fee in the APR unless it's related to a typical balance. It's this kind of thing which makes a complete mockery of the APR concept: the impossibility of quoting an APR. Grrr. It's enough to make one tear one's hair out, if one had enough to spare.

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#12098

DP (Visitor)

calculate interest on a credit balance credit card interest calculated on a daily basis

asked what the daily rate is will divide the APR by 365. Multiplying by a scalar will only work properly if the balance doesn't change during the period. It is the easier calculation to perform. In reality, the balance changes every day as it costs money to borrow every day, so interest must be added. Compounding the interest, as it may be called, works for any time period and allocates the interest fairly when payments are made. You can take an APR, convert it to a monthly rate, then convert that to a daily rate, then convert that to an annual rate which equals the APR. Try doing this with some figures for a flat rate and it wont work (making a payment of £10 per month for a year is not the same as paying £120 at the end of the year - if you think it is, try convincing your credit card company). The APR is the only interest rate that every organisation should calculate in the same way and so it should be the basis for comparisons and checking. Most call centre staff and most customers are not mathematicians, so most of the time everything seems to work out fine. www.mathz.com

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