Previous Balance Method

Filed Under: ,
Dictionary Says

Definition of 'Previous Balance Method'


A credit card accounting method where interest charges are based on the amount owed at the end of the beginning of the billing cycle. The previous balance method charges interest based on the amount of debt the consumer carries over from the previous billing cycle to the new billing cycle. The cardholder's APR is divided by 12 to determine the monthly interest rate, and the previous balance is multiplied by the monthly interest rate to get the finance charge for the current billing cycle. This method can be more expensive for consumers who are in the process of paying down debt, because payments don't immediately reduce the amount of interest owed.

Investopedia Says

Investopedia explains 'Previous Balance Method'


The interest you owe when you carry a credit card balance can be calculated in different ways and can vary from card to card. The cardholder agreement will state the method your credit card company uses to calculate how much interest is owed. The most common methods are the previous balance method, the daily balance method, the average daily balance method, the adjusted balance method and the ending balance method. If you carry credit card debt, you should choose a card with both a low APR and a favorable method of calculating interest based on your pattern of making purchases and payments.







comments powered by Disqus
Hot Definitions
  1. Earnings Call

    A conference call between the management of a public company, analysts, investors and the media to discuss the financial results during a given reporting period such as a quarter or a fiscal year.
  2. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  3. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  4. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  5. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  6. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
Trading Center