Question

Credit card finance charge for a period is simple interest charged on the account balance at the end of the period.

Answer 1

The above statement is not correct. Finance charges are not computed as sinple interest on account balance.

Finance charge refers to the interest you are charged on a debt you owe on of credit card outstanding balance. Finance charge is calculated using annual percentage rate (APR) along with the amount of money you owe and the time period for which the balance is outstanding beyond grace period.

Finance charge are the charges that are included in the cost of borrowing money, like accrued interest as well as fees related to borrowing the money, like transaction fees. A finance charge is typically a synonym for "interest charge,"

In relation to credit cards, your finance charge is the interest that has accrued during that particular billing cycle on the money you owe.

The credit card finance charge depends on a few factors like your annual percentage rate, or APR, the amount of your debt, and how much time there was in the billing cycle.

METHOD OF COMPUTATION OF FINANCE CHARGES

1) Firstly, divide the APR 365 (or 360 in certain cases) to determine your daily rate.

2) Next, the daily interest rate is multiplied by the number of days in the statement billing cycle to determine your interest rate for each particular finance charge.

3) Finally, this rate is multiplied by the amount of debt .

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