Credit Cards

Credit Card Interest Question

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  • Apr 6th, 2021 2:26 pm
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[OP]
Deal Addict
Feb 17, 2015
1003 posts
374 upvotes
Windsor, ON

Credit Card Interest Question

Hey folks

Seeking some advice here, recently was off work for a few months to take care of a newborn child during this lovely pandemic. Before doing this I planned how to reduce borrowing and use savings to come out of my leave with a small amount of debt. Most of it went pretty well, CTFS card was able to buy myself 30-50 days to pay off hydro gas bills and my high spend cards I was able to afford paying off my entire statement, except I accidently made a mistake with BMO for 2 months and didn't pay back $200-$300 out of the $3000 I had spent, most credit cards you figure would charge you interest on that $200-$300 monthly until that plus the new balance is paid off? Looked at my BMO card bill and noticed a $45 interest charge....was surprised but quickly realized crap I didn't pay off a small amount of the balance, called BMO up and didn't ask for releif, simply just asked how their credit card interest works and the CSR advised me that with all their mastercards, if you don't pay the statement in full each month you will be charged interest ON YOUR AVERAGE MONTHLY BALANCE, does this seem common to anyone here?

I called CIBC and Amex to see if I was just stupid and they all work that way, those 2 lenders advised me I would have been charged interest only on the $200-$300 itself then next statement the total due would be the carried balance + new transactions. Didn't check any others yet

Do you think BMO may remove the interest still due to covid 19 is that discussion even worth a shot with them? I mean its only $90 for 2 months and my CB rewards on the card paid some of that nevertheless lesson learned dont carry ANY balance on BMO cards
8 replies
Deal Addict
Oct 24, 2010
1811 posts
1559 upvotes
Ottawa
I don't know what's typical for how they calculate because I've fortunately never carried a balance, but if you're one to always pay in full and you made a mistake this once ... call and ask them to reverse the interest charge. It never hurts to ask.

My wife missed the minimum payment one month a couple of years ago, albeit with a different lender. It was a oversight error on her part. She called. They reversed the interest charge.
Deal Guru
Dec 5, 2006
10297 posts
5380 upvotes
Markham
"How to calculate your APR

To calculate how much interest you’ll be charged, you’ll need to know your average daily balance, the number of days in your billing cycle and your APR.

Let’s say you have a travel rewards credit card and an average daily purchase balance of $1,500 at the end of your 30-day billing cycle. You also have a variable purchase APR of 15.99%.

Here’s how to calculate your interest charge (numbers are approximate).

Divide your APR by the number of days in the year.
0.1599 / 365 = a 0.00044 daily periodic rate
Multiply the daily periodic rate by your average daily balance.
0.00044 x $1,500 = $0.66
Multiply this number by the number of days (30) in your billing cycle.
$0.66 x 30 = $19.80 interest charged for this billing cycle
The math requires some work, but the concept is simple: Carry a balance, and you’ll pay interest."

https://www.creditkarma.com/credit-card ... erest-work
Sr. Member
User avatar
Jun 25, 2008
815 posts
656 upvotes
What matters OP is your specific cardholder agreement. For BMO, it's here: https://www.bmo.com/pdf/Cardholder_Agreement.pdf

And yes, it says (I've bolded relevant sections):
13. Interest on cash advances, purchases and fees
We calculate interest on cash advances from the date of the cash advance
until the date we receive payment in full. There is no grace period for cash
advances. We don’t charge interest on purchases and fees appearing on
your account statement for the first time if you pay your new balance in
full within the grace period set out in your card carrier or in any notice we
provide to you.

If you don’t pay your new balance in full, interest charges on those
purchases and fees will appear on your next monthly statement. We will
charge interest retroactively from the date of the purchase or fee until the
date we receive payment in full.
and
14. How we calculate interest
The interest rates we charge are:
• the annual cash advance and purchase interest rates shown on the
card carrier or any notice we provide to you; or
• any promotional interest rates that we may provide to you.
Your account statement shows your annual and daily interest rates. If
you do not make a minimum payment by the due date two times in any
twelve month period, your interest rate will increase as shown on the card
carrier or any notice we provide to you. The amount of interest we charge
you on each account statement is calculated as follows:
• first, we determine your average daily balance by adding the interest
bearing amount you owe each day and dividing that total by the
number of days in the statement period
• next, we determine the daily interest rate by dividing the annual
interest rate by the number of days in a year.
Your interest charge is then calculated by multiplying the average daily
balance by the daily interest rate by the number of days in a statement
period.
If different interest rates apply to categories of transactions (such
as purchases, cash advances, balance transfers), we calculate the interest
charge based on the average daily balance for each rate. Your account
statement shows the interest charges for each category. If your interest
rate changes during a statement period, we calculate interest using the
rate in effect at the end of that period. We add your interest charge to
your balance at the end of the statement period. As a result, we charge
interest on unpaid interest.
CIBC shows the same language in their Cardholder Agreement: https://www.cibc.com/content/dam/person ... 019-en.pdf

And so does Amex, at least for the SimplyCash one I pulled up: https://www.americanexpress.com/content ... ch2020.pdf
Deal Fanatic
Jan 19, 2017
5171 posts
2913 upvotes
mmikeman wrote: Hey folks

Seeking some advice here, recently was off work for a few months to take care of a newborn child during this lovely pandemic. Before doing this I planned how to reduce borrowing and use savings to come out of my leave with a small amount of debt. Most of it went pretty well, CTFS card was able to buy myself 30-50 days to pay off hydro gas bills and my high spend cards I was able to afford paying off my entire statement, except I accidently made a mistake with BMO for 2 months and didn't pay back $200-$300 out of the $3000 I had spent, most credit cards you figure would charge you interest on that $200-$300 monthly until that plus the new balance is paid off? Looked at my BMO card bill and noticed a $45 interest charge....was surprised but quickly realized crap I didn't pay off a small amount of the balance, called BMO up and didn't ask for releif, simply just asked how their credit card interest works and the CSR advised me that with all their mastercards, if you don't pay the statement in full each month you will be charged interest ON YOUR AVERAGE MONTHLY BALANCE, does this seem common to anyone here?

I called CIBC and Amex to see if I was just stupid and they all work that way, those 2 lenders advised me I would have been charged interest only on the $200-$300 itself then next statement the total due would be the carried balance + new transactions. Didn't check any others yet

Do you think BMO may remove the interest still due to covid 19 is that discussion even worth a shot with them? I mean its only $90 for 2 months and my CB rewards on the card paid some of that nevertheless lesson learned dont carry ANY balance on BMO cards
It doesn't hurt to ask for interest charge to be waived. The worst can happen is they say no.
Deal Fanatic
User avatar
Aug 24, 2016
8415 posts
9069 upvotes
The Prairies
All credit cards I’ve ever seen charge you interest from the very first transaction date if you do not pay your statement balance in full.
So if your statement balance was 3k, and you paid 2.7k by the due date, you did not pay in full.
Your next statement would include interest calculated from the very first date you made a transaction on the prior statement, averaging out the balance for the entire billing term.
Deal Fanatic
User avatar
Aug 24, 2016
8415 posts
9069 upvotes
The Prairies
Dynatos wrote: I don't know what's typical for how they calculate because I've fortunately never carried a balance,
You don’t need to carry a balance to understand how interest charges work.
You only need to read your cardholder agreements.
Deal Addict
Oct 24, 2010
1811 posts
1559 upvotes
Ottawa
coolintheshade wrote: You don’t need to carry a balance to understand how interest charges work.
You only need to read your cardholder agreements.
Fair, but I also have more important things to commit to long term memory than interest calculations for a credit card.

I'll worry about it if I start carrying a balance.
Jr. Member
User avatar
Mar 28, 2008
187 posts
172 upvotes
I think the following information may help to understand how credit card interest works.

If your card gives a grace period and you are not carrying a balance, then you can avoid paying interest on new purchases if you pay your balance in full by the due date. If you lose your grace period by not paying your balance in full by the due date, you will be charged interest on the unpaid portion of the balance. You will also be charged interest on purchases in the new billing cycle starting on the date each purchase is made.

More information from here

Credit Card Interest Calculator

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