Okay maybe I'm stupid but here's the deal... My card agreement says the following re: finace charges: "Finance charges are imposed on purchases and cash advances from the transaction date or the first day of the billing cycle in which the transaction is posted to your account, whichever is later... We determine a portion of the finance charge on your account by applying a periodic rate described below the purchase average daily balance." I realize, I think that a finance charge is immediately imposed on each transaction, i.e. no grace period. What I don't understand is this... Is the finance charge applied each day and then added to the next day's balance, etc. or is the average daily balance computed at the end of the cycle (all days balances divided by number of days) and then multiplied by the periodic interest rate??? Maybe confusiing but I'm sure someone has wrestled with this. Any help would be appreciated...
Typically finance charges are computed and imposed on the final day of the billing cycle based on the average daily balance of the account. You apparently have no grace period on this account. Creditors are not permitted to compound finance charges on a daily basis. In fact they used to be prohibited from compuding finances charges from one billing cycle to another (if you skipped a payment or if they offered you a 'payment holiday'). Unfortunately Congress (not sure of which law, but I think it was most recent FCRA 'reform') has allowed them to start doing this. So if you miss a payment you get slammed with the late fee, the finance charge for the period in which you were late and then the finance charge on the late fee and finance charge on the old finance charge. What a racket, eh?
