Understanding Payment
Calculations For Your Credit Card
by Anthony Samuel
To have a proper understanding of your credit card statement you usually need to
understand the terms and jargons used on it.
The following are some useful terms that can be referenced when attempting to
understand you credit card bill.
Due Amount - This is the minimum payment due per month and not the total amount
due on the card.
Annual Percentage Rate - This refers to the rate of interest charged annually as
a percentage.
Cash Advance - This is a loan in the form of cash that is made with the card.
You can get this loan with the help of your card at any bank or ATM. Most cards
charge a fee for this cash advance as a percentage of the amount borrowed.
Usually the cards do not have a grace period and so interest is charged from the
day you take the loan and till the day you repay the cash advance. It does not
matter whether you have an outstanding balance on your card or not. These rates
are pretty high. So you need to check on it before you take any cash advance.
Date Due - This is the date by which you must send in your payment to be in the
good books of the company.
Grace Period - It is the period in which you can make purchases on the card
without having to pay an interest. It is not that all card companies allow grace
period. To take advantage of a grace period, you must pay your bills totally
every month by the due date. But keep in mind that if you have any previous
balance outstanding, you will lose the advantage of having a grace period on
purchases made in the current month. If you use a card having no grace period,
the bank charges you interest from the day the purchase is made. You cannot, in
any way, avoid paying interest on the purchases made through the credit card.
Not all credit cards have a grace period. When you use a card with no grace
period, the bank begins charging you interest on the day the purchase is made or
the day it is recorded (posted) on your account, depending on the bank's policy.
When a credit card does not have a grace period, there is no way to avoid paying
interest on your purchases. A credit card allowing you grace period will not
charge any interest on the card usage until the next cycle of billing. In fact,
you would not have to pay any interest at all if you pay your total balance
during the grace period of the cycle.
Late Fee - The charge that is attached to the card after the due date expires.
Minimum Monthly Payment - The least amount that you would need to pay to avoid
being considered a defaulter. This is usually the most expensive way to make a
payment for a credit card. Most card companies encourage you to make a minimum
payment every month and let the rest accrue. This way it can take years for you
to pay off your debts. Also you land up paying three times the amount. But if
you do not pay anything or pay less than the minimum amount, you will accrue a
late fee. Additionally, you will have a negative credit report.
New Balance - The sum payable after new costs and credits have been added up.
There are three techniques used to determine the interest rate of credit card
interest. The average daily balance method, calculates the interest to be
charged on your card based on the every day balance during the billing period,
minus the payments received, and then divides it by the number of days in the
billing period.
As per the previous balance method, the interest is calculated on the amount
payable at the end of the last billing cycle. In adjusted balance method, the
interest is calculated by deducting all the payments made throughout the present
billing period from the final balance that was due from the last billing period.
This article was brought to you courtesy of Anthony Samuel, the
webmaster of
http://www.apply-for-a-credit-card-now.com. A credit card directory where
you can search, compare and apply for credit card offers from leading credit
card companies as well as find tools and credit card articles to help you choose
the right credit card.