Credit Card | Calculation of Finance Charge
Finance Charge: You are cognizant about the finance charges . If you want to know that how you have charged or what is the procedure of calculating a finance charge, It is your right to know about these details so that you can understand your credit card statement properly.
Calculation Of Finance Charge
Finance charges calculate depending on the billing cycle as it has added if the payments has made on the last day of the billing cycle. Thus , the calculation is done, keeping in mind the billing cycle based on APR and credit card balance. Hence, finance charges will vary from month to month since your credit card balance is one of the deciding factor.
Credit card issuers or banks have various methods to calculate the finance charges. They may calculate keeping in record your daily balance, an average of your daily balance, the balance at the beginning or end of the billing cycle or the remaining balance in your account after you are done with the payments. Though, it has stated illegal to charge a new finance charge on a balance that you paid off in your previous billing cycle.
If the method of calculating a finance charge is based on your average daily balance , you can use the following formula to calculate the finance charge:
balance X monthly rate
And if the billing cycle is short means that the number of days in billing cycle are less than the days in a month ,then , following formula will consider:
balance X APR X days in billing cycle / 365
By using above formulas , you can calculate an estimated finance charge
And credit card agreement also holds importance as if the condition is there to charge you as a $1.00 minimum finance charge then, in that case if you have charged only $.75 , you will be charge a $1.00 finance charge for that month.
Finding Finance Charges
You can see your finance charges on your monthly credit card billing statement. Your credit card billing statement will include an account summary entailing your balance, payments, credits, purchases and the finance charge that can consider as an interest charge. Where the transactions details have listed, you can see a line item for your finance charge and the date of the finance charge.
In other section , where the interest charges have mentioned , you can view the finance charges depending on the type of balance you have in your account. The difference in the finance charges is because they hold different interest rates and grace periods.
Now , read your credit card billing statement carefully and pay the balance on time.