What is the average daily balance method formula

Download link sent. Category Personal Finance. Introduction The average daily balance method is a common accounting method that calculates interest charges by considering the balance invested or owed at the end of each day over the billing period. What are the Other Methods Available? How it Works? Related Terms. Recent Terms. The credit card company needs a way to determine how much to charge in interest at the end of the billing cycle.

One of these ways is the average daily balance. Many people will have a grace period during which they can pay the unpaid balance.

However, on the first day after the end of the grace period, the credit card company will start charging interest based on the average daily balance. Are you looking for a credit card? Check Bankrate to learn how to choose a credit card and compare different cards to find the one that suits your lifestyle.

To determine your average daily balance, you need to sum up your daily balances in the billing cycle and divide it by the total number of days in the billing cycle, which in this case is The average daily method is known to be less expensive than the other methods out there. To know more about other methods used in calculating finance charges, here are some of the most common:.

With the adjusted balance method, the interest charges are based on the sum owed at the end of the current billing cycle after payments and credits have been posted. With the previous balance method, the interest charges depend upon the sum you owed at the end of the beginning of the billing cycle. To know what type of balance method your credit card issuer uses to calculate finance charge, it would be best to communicate with your credit card issuer or simply check your credit card billing statement.

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