Calculating Finance Charge

What is the formula to calculate credit card finance charge?

• Average Daily Balance x Daily Periodic Rate x Number of Days in Billing Cycle

• Total Credit Limit x Monthly Interest Rate

• Outstanding Balance x Annual Interest Rate

• Minimum Payment x Number of Days in Billing Cycle

If the average daily balance on a credit card is $1000 and the monthly periodic rate is 0.5%, what is the finance charge for the month?

• $10

• $20

• $15

• $5

Explain the difference between the adjusted balance method and the previous balance method in calculating finance charges.

• The adjusted balance method is used for credit cards, while the previous balance method is used for loans.

• The adjusted balance method calculates finance charges daily, while the previous balance method calculates them monthly.

• The adjusted balance method considers the interest rate, while the previous balance method does not.

• The adjusted balance method considers the remaining balance after payments, while the previous balance method considers the initial balance.

If the APR on a credit card is 18% and the average daily balance is $2000, what is the monthly finance charge?

• $120.00

• $90.00

• $75.00

• $50.00

What factors can affect the finance charge on a credit card?

• Weather conditions, Time of day, Zodiac sign

• Outstanding balance, APR, billing cycle length, promotional offers or fees

Calculate the finance charge for a credit card with an APR of 20% and an average daily balance of $1500 for the month.

• $20.50

• $15.00

• $10.41

• $8.75

How does the grace period on a credit card affect the finance charge?

• The grace period allows cardholders to avoid finance charges if the balance is paid in full within that period.

• The grace period only applies to certain types of purchases, not affecting the finance charge.

• The grace period increases the finance charge regardless of payment timing.

• The grace period is a penalty that adds extra finance charges to the balance.

Explain how the daily balance method is used to calculate finance charges on a credit card.

• The daily balance method calculates finance charges based on the highest balance during the billing cycle

• Finance charges are determined by dividing the total balance by the number of days in the billing cycle

• The daily balance method calculates finance charges by multiplying the total balance by the number of days in the billing cycle

• The daily balance method calculates finance charges by summing the daily balances on the credit card account for each day in the billing cycle and then dividing by the number of days in the cycle. The average daily balance is then multiplied by the daily periodic rate and the number of days in the billing cycle to determine the finance charge.

If the monthly periodic rate on a credit card is 1.5% and the average daily balance is $3000, what is the finance charge for the month?

• $45.00

• $82.50

• $67.50

• $60.00

What are some ways to avoid paying high finance charges on a credit card?

• Ignore credit card statements

• Pay off the full balance each month, avoid cash advances, and compare credit card offers to find lower interest rates.

• Make only the minimum payment each month

• Use the credit card for all purchases