Daily Balance Finance Charge Calculation Method

The daily balance method of calculating your finance charge uses the actual balance on each day of your billing cycle. The rate applied is 1/365th of your APR. This is your daily rate. Finance charges are calculated by summing each day’s balance multiplied by the daily rate.

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)

= $11.55

With this method, the timing of your payments and charges makes a difference.

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

You see, making payments early in the billing cycle and charges later in the billing cycle results in a lower finance charge when your credit card uses the daily balance method to calculate finance charges.