Calculating Interest on a Credit Card

Hi there

Firstly, my google skills are letting me down as I could not find a website to do this.
Does anyone know what interest would be incurred with the following facts:

15/10/2010: R2100 purchase made on credit card
25/10/2010: R2100 paid to credit card.

Assume interest rate of, say, 28% per annum, calculated daily and compounded monthly in arrear.

A = P(1 + i)^n
= 2100(1+28/365)^10
= ?
(is this formula even correct?)

Thanks!

Surely you have an interest-free period longer than 10 days?

This I will have to check...

ur formula calculates accumulated value when the interest is compounding daily for a period of 10 days, the difference over 10 days vs to what it actually is, will be overshadowed by bank charges
a closer answer will be:
convert the 28% p.a compounded monthly into an effective rate per annum with the following formula, where i is the effective rate per annum
(1+0.28/12)^12=(1+i)
=> i = .3188805059
now, this involves an approximation, since im not entirely sure what they mean by calculated daily (since if interest is calculated and added daily, it becomes compounded daily since the following day ur paying interest on that interest aswell - so i think it just means they calc the amount each day on the current outstanding balance and then only add it at the end of the month - however since the amount remains unchanged, i dont think itll make a difference)
now this number can be divided by 365 to get the daily interest rate (provided ur time period doesnt straddle a month end, as is the case here) - which comes to 0.0008736452217
then theyll user periods of a month (this is due to the monthly compounding), interperiods theyll use it as a simple rate (this is prolly the implication of the calculated daily - it means from their side if the period is shorter than 1 month, its in their advantge to calculate the simple rate - think of a graph of x^2 between 0 and 1, vs a y = x line between 0 and 1; until u reach 1, the simple straight line graph is above the power graph - this is simple vs compound, and since its compounded monthly - compare the point after 1, the x^2 goes above and stays above)
-this means u can multiply this by 10 to get ur 10 day interest amount leaving u with 0.008736452217
and the total interest paid over the period will then be 2100*0.008736452217 = R18.34654965

however as pointed out, u will likely have a grace period

Read this: http://www.globalproperty.co.za/credit2.html

Managing Credit Card Debt - Secrets Your Credit Card Company Hopes You Never Find Out!

"THE BOTTOM LINE: You should know how your bank calculates finance charges "


In other words, you need to speak to your CC provider to find out how they do it.

Riot2 said:

ur formula calculates accumulated value when the interest is compounding dailing for a period of 10 days, the difference over 10 days vs to what it actually is, will be overshadowed by bank charges

Click to expand...

I think most of the bank charges is on the retailer end. But ask the bank how intrest is calculated. I think you have an intrest free period depending on your statement date and the purchase date.

There is a cycle to credit cards.

If you pay the balance due on your statement before the due date on your statement, you will be charged no interest.

Eg,
My total balance outstanding as at my statement date (say the 24 September) is R5000. If I pay R5000 before the statement due date (say the 19 October), I will be charged no interest.

If I make further purchases after my statement date, it will only reflect on my next statement (24 October) and will be due on my next due date (19 November). (This is where the up to 55 days interest free part comes in 25 September to 19 November = +-55 days.) I am still only required to pay the R5000 befre the due date.

There are some transactions that are exempt from being interest free:
Fuel, cash withdrawals, EFT payments and casino cash desk purchases are some of them.

If you do any of the above transactions or fail to pay the total balance outstanding by the due date, interest is calculated on the outstanding balance daily (at a monthly effective interest rate for those that care) and added to your balance monthly.