Is interest of credit cards caculated based on the amount unpaid within the grace period?
From Wikipedia
if a user had a ,000 transaction and repaid it in full within this
grace period, there would be no interest charged. If, however, even
.00 of the total amount remained unpaid, interest would be charged
on the ,000 from the date of purchase until the payment is received.
I wonder if it is wrong? If the cardholder pays 9 at the end of the grace period, isn't the interest calculated based on the unpaid amount , instead of the total 00? Thanks!
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Not only does the interest get charged from Day 1 on new purchases as long
as you have a revolving balance, but the credit card agreement often says
something to the effect that any partial payment is applied first to the
interest to date, and then transfer balances on which no interest is being
charged and so the bank is losing money on it, then to other transfer
balances and cash advances (and no refund of that 3% fee that was
collected up front on the cash advance) and finally
to the purchases starting from the most recent back to the oldest one.
Even the FAQ on my card site says in simple language
"We apply payments and credits at our discretion, including in a manner most favorable or convenient for us." (see mhoran_psprep's
answer).
The moral is indeed what Dheer has already told you: do not carry a
revolving balance on a credit card and if you have a revolving balance,
pay it off as soon as possible, Do not wait for the end of the
grace period; if possible, pay it off the day the statement is
issued, or if you can make only a partial payment, make it as soon
as possible. Make multiple partial payments each month if you have
cash flow problems, or improve your cash flow by forgoing one or more
of the many Grande Vente Mocharino Espresso Lattes you consume each
day. Credit card debt is close to the worst kind of debt that you
can have, and it is best to get out from under as soon as possible.
Remember, there is effectively no grace period as long as you have
a revolving balance on your credit card. You are paying interest
for every one of those days.
The answer is the next sentence from the Wikipedia article:
The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement.
Your previous question on credit card interest rates quotes the sentence after this.
You have to review what the agreement for your card says. Also keep in mind the bank wants to make money from you. The more interest and fees they collect, they better they like you. If enough card holders adjust their behavior, to minimize interest and fees; the bank will then adjust the credit card agreement to get money a different way.
Yes, you are right it would seem fair to only charge interest on the smaller amount, but that doesn't allow the credit card issuer to maximize profits.
The statement in Wikipedia is generic.
Whether a particular Bank would charge as per above example or not would be in the card holder's agreement.
So if you do not have any dues, and on 10th April you charge 00, and on 13th April you charge 0. Statement date is 18th April. Grace Period to pay is say 10th May.
If you do not pay in full by 10th May, and say you only pay 0, Bank would charge interest from 19th April to 10th May for 00, post 10th may they would charge interest for 00 balance. Further all fresh purchases would be charged interest from day 1.
Net Net Morale of the story is do not carry / revolve money on Credit Card. For all practial purposes use a credit card as a convenience card.
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