Calculation of interest

[blue-eye-boy]

How is a monthly payment calculated. Say I buy something on my credit card. I pay 18.75% interest, and I will pay it off in 10 months, or 36.

 

[chrisc]

Say the item cost R 1200

The interest is calculated on the reducing balance

In the first month you pay R 100. That leaves a balance of R 1100. 1 month interest at 18.75% per annum interest is R 17,02 ((R1100 x 18.75%)/12))

So your balance at the end of the first month is R 1117.02

and you pay another R 100 at the end of the second month. Apply the same formula and you will see how the payment is calculated.

You can download easy to understand templates that run in Excel which prompt you to put in the capital, interest and period and show you the results immediately. This is the easiest way to operate

 

[blue-eye-boy]

ah okay thanks. Will check for the templates

 

[noxibox]

Searching for time value money will generally turn up the results you're looking for.

 

[SinghDude]

Credit card on most occasions = 55 days interest free .

If one does not pay off the full amount within the 55 days then you are liable for interest on the entire amount of debt you initially signed up for... ( banks have to make money )


On a side note....all cash advances on a credit card are billed with interest from DAY 1

 

[rodga]

Credit card on most occasions = 55 days interest free .

If one does not pay off the full amount within the 55 days then you are liable for interest on the entire amount of debt you initially signed up for... ( banks have to make money )


On a side note....all cash advances on a credit card are billed with interest from DAY 1

ok

so say I make a purchase of R5000 on my CC
then I pay off R3000 before the 55 days
that leaves R2000 left

then on day 60 i spend another R1500 while still owing R2000
does that amount attract interest immediatley, or does the 55 day interest free still apply on the R1500 amount?

hope im making sense here?

 

[SinghDude]

ok

so say I make a purchase of R5000 on my CC
then I pay off R3000 before the 55 days
that leaves R2000 left

then on day 60 i spend another R1500 while still owing R2000
does that amount attract interest immediatley, or does the 55 day interest free still apply on the R1500 amount?

hope im making sense here?

You will be billed interest charges on R5000 for your initial purchase ( you have'nt paid off the debt yet )

Your second purchase of R1500 will still have a 55 day interest free window

 

[D3x!]

dont you pay interest on the full amount loaned, i.e if you spend R1000 and pay off R900, you wont pay interest on R100 but on R1000?

sorry i am no expert as do not own a credit card and dont want one.

 

[D3x!]

You will be billed interest charges on R5000 for your initial purchase ( you have'nt paid off the debt yet )

Your second purchase of R1500 will still have a 55 day interest free window

dont you pay interest on the full amount loaned, i.e if you spend R1000 and pay off R900, you wont pay interest on R100 but on R1000?

sorry i am no expert as do not own a credit card and dont want one.

ah same time but that is what i thought.

 

[SinghDude]

dont you pay interest on the full amount loaned, i.e if you spend R1000 and pay off R900, you wont pay interest on R100 but on R1000?

sorry i am no expert as do not own a credit card and dont want one.

Yup..... the interest free only applies if the total debt has been repaid.

 

[rodga]

thanks guys
was always something i wasnt sure about

 

[Nerfherder]

ok

so say I make a purchase of R5000 on my CC
then I pay off R3000 before the 55 days
that leaves R2000 left

then on day 60 i spend another R1500 while still owing R2000
does that amount attract interest immediatley, or does the 55 day interest free still apply on the R1500 amount?

hope im making sense here?

From what I understand they count the 55 days from the last day you had a zero balance.

What a lot of people do is make sure they have a zero balance on their CC when the interest is calculated. So they just transfer their salary in to their CC as soon as they get it and then transfer it back when the new month starts.

 

[fastesthamster]

From what I understand they count the 55 days from the last day you had a zero balance.

What a lot of people do is make sure they have a zero balance on their CC when the interest is calculated. So they just transfer their salary in to their CC as soon as they get it and then transfer it back when the new month starts.

Nope.

You will have a cycle date, mine is the 25th. On this date any fees and finance charges will post. Any transactions from the 26th onwards will form part of the next cycle.

Example, say your cycle is the 25th:
All transactions between 26/01 - 25/02 will need to be paid in full by the 19/03. There is your "up to" 55 days interest free portion. Not every transaction will be interest free for a full 55 days.

 

[HavocXphere]

That leaves a balance of R 1100. 1 month interest at 18.75% per annum interest is R 17,02 ((R1100 x 18.75%)/12))

So your balance at the end of the first month is R 1117.02

The quoted rate is an effective rate, so you'd need to convert it to nominal w/ monthly compounding.

((1.1875)^(1/12)-1)*1100=R15.86

This assumes monthly compounding. In practice I think the banks compound daily, but credit it to the account monthly I think.

 

[Icarium]

From what I understand they count the 55 days from the last day you had a zero balance.

What a lot of people do is make sure they have a zero balance on their CC when the interest is calculated. So they just transfer their salary in to their CC as soon as they get it and then transfer it back when the new month starts.

Doesn't work that way - transfers out of your CC are counted as cash and don't have the benefit of the interest free period. (Yes, you'll save two months interest on your original purchase though).

 

[midnightcaller]

Nope.

You will have a cycle date, mine is the 25th. On this date any fees and finance charges will post. Any transactions from the 26th onwards will form part of the next cycle.

Example, say your cycle is the 25th:
All transactions between 26/01 - 25/02 will need to be paid in full by the 19/03. There is your "up to" 55 days interest free portion. Not every transaction will be interest free for a full 55 days.

This is my understanding of the 55 days interest clause. I have been using this system for years to pay with my credit card.