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Describe The Terms Average Daily Balance Grace Period And Credit Card Interest

Referencing Styles : APA | Pages : 1

Average Daily Balance: In accounting methods, average daily balance is a specific type of the accounting methods where the calculation of the entire charges for the interest has been calculated with the consideration that the invested balance, or the balance that has been owed during the billing periods right at the end. The common method by which the invested balance was calculated at the end of each week or owed at the end of each week, or even the end of the month or year is not followed this time and the calculation is done at the end of each day about the billing period. The total amount that is due right at the time of the ending each day is calculated feasibly. The average daily balance and its calculations occur at the end of each day credits the account of the customers right from the day at which the credit card company is presented with a payment. The charges that the credit card company impose with the help of the average daily balance to a customer must be recorded as low as the previous balance calculation method. At the same time, the calculation of the average daily balance for a customer from the perspective of the credit card company should be higher than the previous less common adjusted balance method. The recorded balance is regarded as the average balance that needs to be considered by the payment made at the end of each day and the financial charges have to be calculated on the basis of the daily balance at the end of each day.

Grace Period: In the term of investment accounting methods, the term Grace Period is regarded as the length of the time that occurs after the due date of a given period of time during which any kind of payment done needed to be considered according to the contract made or according to the declaration of the mutual understanding. In any kind of mortgage loan or in any kind of contracts made about the insurance plans, the time for the grace period is typically considered to be about 15 days from the time of the last day of payment method. However, it needs to be considered that the payment that has to be done according to the contract but has been done after the grace period is not to be considered as any kind of black mark on the credit report of the creditor. The time allotted for a grace period usually makes sure that the borrower of the money has proper time about the repayment of the amount that has been taken from the insurance organization if by any reason he or she is unable to repay the amount back to the investment officer right at the due time. This is the allotted time where there must not be any kind of late fee charged and at the same time this is the time where there is no cancellation of the contract or the loan if there is a delay in the payment. The only thing that needs to be kept in mind is that the amount of the repayment has to be done within the time that has been considered as per the grace period in the contract. The loan amount may not be present in the report for the credit card but any kind of payment done after the Grace Period can have an additional amount of charges imposed upon the original amount that was required to be paid. However, it might not reflect on the credit card report of the borrower as a black mark.

Credit Card Interest: The ways by which the Credit Cards can be used for the benefits of a person can also be sometimes causing problems to the credit card holder. If there is a situation that the Credit Card holder has to make an important purchase but right at that point of time is running out of the cash amount that needs to be paid, there are options that the purchase can be done with the use of the credit cards and according to the clauses of the credit card, there also may be chances that the payment can be made later after a certain point of time. However, there might also be chances that the card holder becomes a habituated investor and keeps balances randomly. There also might be huge charges for the interest that might occur at the point of time when the purchases are made. Interest is the amount of money that is charged at the end of each month from the credit card holders about the money that is owed from the holders with the use of the credit cards in exchange of emergency money. However, if it is found that the cash advance or a balance transfer is made, then there might be chances that the credit card interest may be higher than the usual amount along with the other charges imposed upon this, in comparison with the other simple purchases made. Some credit cards are also found to have variable rates of interest.

Calculation for Credit Card Interest: The calculation of the Credit Card Interest happens to be in three different states. These can be mentioned in details as follows:

  1. Converting the annual rate into daily rate: The credit card statement considers the identified statement for interest rate designated as the Annual Percentage Rate or APR. The interest rate is found to be calculated as per each year, which has to calculated as per the daily basis calculation. This is required to be converted to the daily rate from the yearly rate by applying the division method. The total amount needs to be divided by 365 days.
  2. Determining the average daily balance: The statement has to be calculated for finding out the billing period and the charge for the credit card interest needs to be calculated on the basis of the balance acquired at the end of each day. Once the average daily balance is acquired, the number of the days can be divided by the balances in the billing period and the result would be the average daily balance.
  3. Final step: The final step for the calculation of the credit card interest is the dependency of the multiplication of the average daily balance by the daily rate and then multiply the resulting number of the days by the billing period.

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