Definition of 'Average Daily Balance Method'
A credit card accounting method where interest charges are based on the amount owed at the end of each day. Under the average daily balance method, each day's balance for the billing cycle is summed then divided by the number of days in the cycle, to compute the average daily balance. The average daily balance is then multiplied by the monthly interest rate to determine the customer's finance charge. The monthly interest rate is calculated by dividing the cardholder's APR by 12.
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