average daily balance interest

Front

What is Average Daily Balance (ADB)?

Back

Average Daily Balance (ADB) is a method used to calculate interest on a credit card or loan by averaging the balance over a specific period of time.

Front

How is interest calculated using Average Daily Balance?

Back

Interest is calculated by multiplying the Average Daily Balance by the daily periodic rate (APR divided by 365) and then by the number of days in the billing cycle.

Front

What does APR stand for?

Back

APR stands for Annual Percentage Rate, which is the yearly interest rate charged on borrowed money.

Front

If your Average Daily Balance is $1000 and your APR is 20%, what is the daily periodic rate?

Back

The daily periodic rate is 0.0548% (20% / 365).

Front

What is the formula to calculate interest using Average Daily Balance?

Back

Interest = (Average Daily Balance) x (Daily Periodic Rate) x (Number of Days in Billing Cycle).

Front

What is the significance of the billing cycle in calculating interest?

Back

The billing cycle determines the number of days over which the Average Daily Balance is calculated, affecting the total interest charged.

Front

How does a higher Average Daily Balance affect interest charges?

Back

A higher Average Daily Balance results in higher interest charges because interest is calculated based on the balance.

Front

What happens if you pay off your balance before the end of the billing cycle?

Back

Paying off your balance before the end of the billing cycle can reduce the Average Daily Balance, thus lowering the interest charged.

Front

What is the impact of making purchases during the billing cycle on Average Daily Balance?

Back

Making purchases increases the Average Daily Balance, which can lead to higher interest charges.

Front

If your Average Daily Balance is $2000 and your APR is 15% for a 30-day billing cycle, what is the interest charged?

Back

Interest charged = $2000 x (0.15/365) x 30 = $24.79.