CandleFocus Glossary Editor
The Average Daily Balance Method is a way of calculating how much interest to charge credit card holders for their outstanding balances. It gives customers a more accurate way to track their total amount due and calculate the amount of interest they will be charged for their purchases.
Under the Average Daily Balance Method, interest charges are calculated based on the total amount due at the end of each day. The average daily balance credits a customer's account from the day the credit card company receives payment. Consequently, when payments are received, the daily average balance amount decreases and reduces the amount of interest the customer has to pay.
This method of calculating interest charges is less harsh than the previous balance method because customers are only charged interest from the day payment was received. The previous balance method, on the other hand, charges interest for the entire current balance, regardless of when payments were sent.
When comparing the Average Daily Balance Method to the less common adjusted balance method, the interest charges for the Average Daily Balance Method should be higher. This is because the Average Daily Balance Method still charges interest until the payment is received. The Adjusted Balance Method only charges interest from the start of the billing cycle to the date the payment is due, not from when the payment is sent or received.
The Average Daily Balance Method allows customers to accurately monitor their total amount due and helps them determine the amount of interest they will be charged for their purchases. Customers should be aware of the differences between these three methods of calculating interest in order to make the most informed decision when utilizing their credit cards.
Under the Average Daily Balance Method, interest charges are calculated based on the total amount due at the end of each day. The average daily balance credits a customer's account from the day the credit card company receives payment. Consequently, when payments are received, the daily average balance amount decreases and reduces the amount of interest the customer has to pay.
This method of calculating interest charges is less harsh than the previous balance method because customers are only charged interest from the day payment was received. The previous balance method, on the other hand, charges interest for the entire current balance, regardless of when payments were sent.
When comparing the Average Daily Balance Method to the less common adjusted balance method, the interest charges for the Average Daily Balance Method should be higher. This is because the Average Daily Balance Method still charges interest until the payment is received. The Adjusted Balance Method only charges interest from the start of the billing cycle to the date the payment is due, not from when the payment is sent or received.
The Average Daily Balance Method allows customers to accurately monitor their total amount due and helps them determine the amount of interest they will be charged for their purchases. Customers should be aware of the differences between these three methods of calculating interest in order to make the most informed decision when utilizing their credit cards.