Here's an example:
APR = 14%
daily rate = .0385%
days in billing cycle = 30
daily balance = $1000
finance charge = (Day 1 balance * daily rate) + ... + (Day 30 balance * daily rate)
= ($1000 *.000385) + ... + ($1000 * .00385)
Consider same APR, daily date, and days in billing cycle as above.
If you make a $100 payment on the 5th day of the billing cycle, your finance charge would be $10.55. If you made a $100 payment on the 25th day of the billing cycle, your finance charge would be $11.32.
Making payments early in the billing cycle results in a lower finance charge under the daily balance method.
Let's say you make a payment ($100) and a charge ($75) during the same billing cycle. Look at how the timing of each affects your finance charge:
- Payment on 5th, charge on 25th, finance charge = $10.69
- Payment on 5th, charge on 6th, finance charge = $11.27
- Payment on 25th, charge on 5th, finance charge = $12.11
- Payment on 24th, charge on 25th, finance charge = $11.46