credit card interest calculated on a daily basis

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.

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.

In message , Ronald Raygun writes

Yes you can. For a credit card the APR calculation assumes the minimum allowed monthly payment for as long as it takes to clear the balance taking into account ALL charges.

Agreed. I'm lobbying my MP to get carpet cutting charges to be included also.

Hey you! Are you taking the mickey!!!!

In message , john boyle writes

P.S. Should have also said that it doesnt assume a 'typical' balance but the maximum allowed by the credit limit at the outset drawn in one amount.

That not only makes no sense, but does so in two ways:

(1) The minimum allowed monthly payment is usually a fixed amount. So is the annual fee. You can't quote an APR unless you assume a particular size of balance transfer.

(2) The fee buys the total package. You can't apportion in advance which part of the fee to include in the APR for the balance transfer and which part in the ordinary APR for "normal" use of the card, unless you either assume the card is used exclusively for one or the other, or you assume a specific usage pattern.

View in fixed pitch. Each letter represents 1ft wide by 2ft high. Chop the original 12x12 into two pieces A and B, using a single cut with 10 corners, then shift the B piece up 2 and left 1, leaving the 5x2 hole X.

ABBBBBBBBBBB AABBBBBBBBBB AAABBBBBBBBB AAAAAAAAABBB AAAAAAAAAABB AAAAAAAAAAAB

BBBBBBBBBBB ABBBBBBBBBB AABBBBBBBBB AAAXXXXXBBB AAAAAAAAABB AAAAAAAAAAB AAAAAAAAAAA

Perish the thought, one was talking about oneself. One didn't know you were follically challenged too, but one does now. You just don't know when to keep quiet, do you? Foyled again.

Yes it does.

Yes, you need to do that when computing the APR, but that's a mere academic exercised far removed from reality.

Interest compounds when interest is actually charged to the account. Typically, although interest *accrues* on the daily balance, it is only *charged* once a month, therefore it compounds monthly.

In message , DP writes

OK, but everybody who works in the 'interest calculation' business reckons it does.

Yes, but that isn't what is meant by 'compounding monthly'. That merely describes the accrual method. The interest accrues daily and every month the total interest that has accrued that month is added to the existing balance and then interest accrues on that new balance. The monthly application of the accrued interest is called 'compounding monthly'. Bank overdrafts often compound quarterly, and many mortgages compound annually. The formula you quoted adds the accrued interest to the balance daily and compounds daily and that isnt the way credit card companies do it.

What do you mean by that?

Interest either is or is not compound interest. It is the rates that can be annual, monthly or daily.

I'm sure that different cards work in different ways but on my last statement there were two items. A purchase carried forward from the previous month and a balance transfer. I was charged 9 days interest on the balance transfer and 41 days interest on the purchase. Both interest charges were printed separately on the statement.

In message , DP writes

Yes, and for a credit card it is compound, on a monthly basis. Your formula was daily compounding.

Yes, and so can the compound period. But, I think you are getting the idea.

I now see what you really meant, not 'equivalent rate' but the companies merely show the two calculations because it is possible for the balance transfer to have a different rate of interest than the purchase. that's all.

Forgive me if this is a stupid question because it has already been made clear among the helpful responses, (some of which were above my head), but..

When I receive a credit card statement... If I don't pay off the

*total* balance by the stated "pay by" date, but only wish to pay off the *minimum* payment required, is it advantagous to delay paying that until close to the "pay by" date, or will I save myself some interest charges if I pay the minimum payment as soon as I recieve the statement?

Thanks again,

Jake

"Ronald Raygun" wrote

Just to "throw a spanner in the works"(!), this reminds me of when I first started a building society savings a/c, way back at the age of thirteen(!) :

When I asked whether interest was compounded, the answer was "interest is added monthly but compounded daily". Seems fair enough - ie they only added interest just once a month, but when they did so they added the amount which would have accrued had they been adding & compounding daily...

So, even though I probably believe you that interest is usually compounded monthly on credit cards, I'm not sure your indication that "only *charged* once a month, therefore it compounds monthly" quite necessarily follows. :-(

I managed to convince myself it wasn't possible. However I assumed that when you talked about a 14ft x 11ft room with a 5ft x 2ft plinth you had the long sides of the room and plinth parallel.

Sorry about that. I think that was actually the case in the problem when I originally met it, but I've forgotten the original dimensions, so just made up new ones, and 14x11-5x2x12 was the first set of plausible numbers that came into my head.

...and neither are calculated over a month.

In message , DP writes

ER, and what do you mean by that?

Lets go over it again. Each accrues the interest, at whatever rate is appropriate for either transfers or purchases, on a daily basis according to the balance outstanding for that class of transaction, then debits the total accrued interest to the account each month. What could be simpler than that?