Saturday, October 11, 2008

Trailing Interest

Trailing interest, sometimes called final or residual interest, is a method of calculation whereby interest is charged right up until the day of a full payment. Cardholders of banks that use this method receive a bill with the balance owing and interest accrued and pay it off in full. On the next statement they are billed a "final" amount of interest even if no purchases or cash advances have been debited since. The reason for this is that interest continues to accrue from the time of the close of the previous statement until the day the payment for that statement is actually received.

In comparison to the normal method of interest calculation, this method is judged by many to be a hidden and thus unfair cost. Uninformed cardholders often inquire as to what amount they need to pay by their due date in order to have paid off their credit card in full and to stop interest from accumulating. They then proceed to pay off this amount under the belief that they are finished paying interest charges, only to find trailing interest on their next statement which was posted to their account on the day of the statement billing (so even if they check their balance a day before that next billing date, it would still show a zero balance).

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