Fees Are In Addition To The Finance Charge That You Will Have To Pay

Category: Finance.

Whether you are shopping for a new credit card or wondering about the one that you may already have, knowing how to calculate the finance charge applied to that card is important. A credit card finance charge is the amount of money that you pay to the credit card company in order to use their credit.

First, it is equally, however important to know what finance charges really are. This is not the same as the purchase amount balance. If you pay off the purchase amount balance within the stated amount of time that the company allows, you will have no finance charges applied to the amount. The purchase amount balance is the dollar amount of the purchases that you made using the card. It is when you carry over your balance that finance charges are triggered and added to your account. The APR is the Annual Percentage Rate and all credit cards use them to figure finance charges. Finance charges are calculated using the amount of your outstanding balance and APR.

It is important for consumers to understand that the ARP can vary from one company to the next, and it can even vary within the same company. This will save you money in the long run. It is for this reason that consumers should always look for the companies with the lowest APR s. There are several ways that credit card companies can calculate the finance charges that they apply to consumer credit. Here are some of the methods that credit card companies use to figure finance charges on your outstanding balance: They can calculate using one billing cycle or two billing cycles. Many people do not realize it but the method that is used can make a difference in the amount of money that you will have to pay.

They can use the adjusted balance, or the average, previous balance daily balance. You will normally find that you have a lower finance charge when the company uses what is known as one- cycle billing and uses the average daily balance method which excludes new purchases. They can exclude or include new purchases in the balance. Much of this, depends on the, however balance and the time of the month that you make purchases and payments. You can see which method the company is using by reading the bill that you receive. The next lower finance charge method is the adjusted balance, followed by the previous balance method.

This information is usually contained on the back side. When a credit card company uses this system you will be charged that set amount even if your calculated finance charge is less than that amount. It is also important that you understand that some companies will have a minimum finance charge system. Of particular importance to some credit card holders are the cash advance programs that come with some cards. Many companies that offer cash advances treat those advances differently than they do purchases. Consumers should be very careful when using credit cards for cash advances. Before you use your credit card for a cash advance, make sure you look for the details of how you will be charged for that advance.

Keep in mind that this may be significantly higher than the APR that is used for purchases. You will certainly want to know what the APR is for cash advances. You should also investigate the fees that may be applied to the transaction. Lastly, find out how your payments will be credited. Fees are in addition to the finance charge that you will have to pay. Some companies will apply your payments to your purchases first and then to any advances in cash that you have taken. Use your credit card wisely and keep track of your finance charges and you will enjoy your credit more fully and avoid some of the pitfalls that many consumers experience.