Quick question about CC interest

DrezDrez Registered User regular
Having an argument with someone. They claim that if you charge $2000 and don't pay all $2000 before your payment date, you get charged interest for all $2000, even if you paid off, say, $1500 of it. The claim is that you get hit for interest on $2000 rather than $1500.

True/False/Some cards yes

P.S. We excluded American Express.

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  • JebusUDJebusUD Adventure! Candy IslandRegistered User regular
    edited September 2014
    It depends on the card i'm sure. Looks like discover works on and addition of the daily interest.

    https://www.discover.com/credit-cards/cardmember-agreement/payments.html

    Now it used to be double billing cycle for most cards, which really screwed you, but is now illegal.

    http://credit.about.com/od/usingcreditcards/a/twocyclebilling.htm

    But I think there are a few other ways as well. Like, average daily interest.

    JebusUD on
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  • hsuhsu Registered User regular
    edited September 2014
    Interest is charged by the day.
    Let's say you charge your card on day 1 for $2000, due in 30 days.
    You pay the credit card company $1500 on day 20.
    You will be charged interest on $2000 for 20 days plus interest on $500 for 10 days.
    The interest is waived if and only if you pay off everything before the bill is due.
    That's the most common way credit cards work.

    Basically, your friend is correct.
    If you wait 30 days to pay only $1500, you'll be charged 30 days of interest on $2000.
    Interest starts accumulating immediately upon purchase.
    Note that this means, if you purchased something on day 25, you'll be charged just 5 days of interest.

    Also note how the waived interest works.
    You get the 30 day grace period, where the interest is waived, if and only if you pay off your bill in full.
    If you do not pay off your bill in full, you do not get any grace period.

    hsu on
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  • DjeetDjeet Registered User regular
    Every card I've had uses "Average Daily Balance" to calculate interest outside of any normal grace period. You should be able to determine how any specific card calculates interest by checking the cardholder agreement.

  • DhalphirDhalphir don't you open that trapdoor you're a fool if you dareRegistered User regular
    edited September 2014
    hsu wrote: »
    Interest is charged by the day.
    Let's say you charge your card on day 1 for $2000, due in 30 days.
    You pay the credit card company $1500 on day 20.
    You will be charged interest on $2000 for 20 days plus interest on $500 for 10 days.
    The interest is waived if and only if you pay off everything before the bill is due.
    That's the most common way credit cards work.

    Basically, your friend is correct.
    If you wait 30 days to pay only $1500, you'll be charged 30 days of interest on $2000.
    Interest starts accumulating immediately upon purchase.
    Note that this means, if you purchased something on day 25, you'll be charged just 5 days of interest.

    Also note how the waived interest works.
    You get the 30 day grace period, where the interest is waived, if and only if you pay off your bill in full.
    If you do not pay off your bill in full, you do not get any grace period.

    I cannot think of any credit card I have ever had in Australia that has anything less than a 45 day no interest period on ALL purchases. I think my current one has 60 days. As long as you pay your card off by the end of each month like clockwork, it doesn't matter when you purchased each individual thing, the longest you'll go without paying something off is 30 days from beginning of month to end. I have never ever paid interest on my credit card.

    Is this not the case in the USA?

    Dhalphir on
  • tarnoktarnok Registered User regular
    edited September 2014
    Ha. You probably have things like consumer protection laws in Australia. Haha. Ha.

    Not technically credit card related but just to give you an idea of how things go in America: you incur an overdraft charge for each debit card transaction that you don't have funds to cover. If you make several small purchases and then one large one that pushes you over in the same day, some banks will process them from largest to smallest causing you to rack up three or four overdrafts rather than the one.

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  • QuidQuid I don't... what... hnnng Registered User regular
    The U.S. is the same.

    Drez: most CC companies offer a 30 day grace period during which you aren't charged interest if the balance is cleared by then.

    However CC companies also calculate interest daily. So if after this period you waited til just before the end of the next month you would effectively be charged interest for most of the original sum.

  • Dr. FrenchensteinDr. Frenchenstein Registered User regular
    tarnok wrote: »
    Ha. You probably have things like consumer protection laws in Australia. Haha. Ha.

    Not technically credit card related but just to give you an idea of how things go in America: you incur an overdraft charge for each debit card transaction that you don't have funds to cover. If you make several small purchases and then one large one that pushes you over in the same day, some banks will process them from largest to smallest causing you to rack up three or four overdrafts rather than the one.

    that is actually not legal anymore, but it was totally happening all the time.

    Echo
  • DrezDrez Registered User regular
    I totally forgot I made this thread. Thanks for the info, guys. I'm chagrined.

    Switch: SW-7690-2320-9238
    Steam/PSN/Xbox: Drezdar
    Playing: Animal Crossing (SW), Murder by Numbers (SW), Skyrim VR (PC)
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