When we are pursuaded by the credit card companies/banks to go for a Card, we are informed that the rate of interest is only X.Y% per month. Actually it’s not a flat X.Y% interest per month. Few of us will be aware of how exactly are we charged. I never analysed my statement so closely. Only recently after getting a jolt from my trusted credit card, I requested for a breakup of the Finance Charges(FC) & here is the formula;
FC=(Outstanding Balance) *(Number of days) *(No. Of Months) /(No. Of Days in a year) *(Rate of Interest/%)
Ex: Considering an interest rate of 3.3%,
(No. Of Months) /(No. Of Days in a year) *(Rate of Interest/%)
=(12/365)*(3.3/100)
= 0.001(approximately)
Hence the factors that mainly attract interest are Outstanding Balance & Number of Days.I wish I could upload the calculation sheet here, but not sure if it works.
Bottom line is if one has outstanding then each day attracts interest. Does not matter how much repayment you make, what matters here is when you make the payment and what’s your outstanding.