Interest calculations, Credit Card vs LOC

[Thaco]

So, i am just curious how the interest calculations would vary based on a LOC or CC, reguardless of the interest RATE, assuming its the same rate, is the interest actually calculated the same?

to the best of my understanding its basically "Interest rate/12*outstanding balance"... is this true for both products?

[ThePenIsMightier]

I'm 90% certain that the answer is yes.
It sticks because interest accrues between the time the bill comes and when you pay what you think is the last chunk. Then you still get a tiny bill the next month.
Debt is for presents. Be more Beyond.

[realazy]

Except credit cards give you a minimum 21 day grace period before interest is calculated, the time between the posted transaction and the next statement. That period is sometimes up to 35 days if a charge is posted right after the statement is generated and will be on the next month's statement. This does not apply to cash advances, cash advances accrue interest immediately, there is also a cash advance fee per transaction.

[Misterman]

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Except credit cards give you a minimum 21 day grace period before interest is calculated, the time between the posted transaction and the next statement. That period is sometimes up to 35 days if a charge is posted right after the statement is generated and will be on the next month's statement. This does not apply to cash advances, cash advances accrue interest immediately, there is also a cash advance fee per transaction.

I always wondered about this. Cash advance generally has a different interest rate than regular purchases. So how does the CC company decide what interest to charge you if you're carrying a balance over but making regular payments? I'd guess it just goes by purchase/withdrawl date. So your payments get applied to the oldest transactions until they are paid off.

[realazy]

They definitely apply payments to the oldest transactions first and do keep track of the different interest rates. That's why those balances transfers are tricky. They offer low, sometimes close to 0%, interest on your balance transfer.

However, if you charge something to the card, that new charge will not be paid off when you make payments until you have paid off your balance transfer which is older. The new charge will accrue the regular interest rate.

That's how they get people. If you do take advantage of a low rate balance transfer offer, DO NOT use the card until the balance transfer is paid off.

[pheoxs]

All things being equal you'd pay more interest on the LOC because the 0 grace days. However no LOC will have the same interest rate as a credit card. Most unsecured LOC are around 8% (give or take a few %) assuming you have decent credit whereas most cards start at 12% for low interest cards (typically with fees) and go up to 22% for most reward cards.

The best way to minimize your interest is to pay with your credit card then use the grace period until your statement is due then shift the balance to the LOC.

[Mitsu3000gt]

Also note once interest is triggered, credit cards charge you interest from the purchase date, even if you are only one day past the date that would trigger interest on the entire bill. Cash advance gets interest charged immediately.

[triplep]

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All things being equal you'd pay more interest on the LOC because the 0 grace days. However no LOC will have the same interest rate as a credit card. Most unsecured LOC are around 8% (give or take a few %) assuming you have decent credit whereas most cards start at 12% for low interest cards (typically with fees) and go up to 22% for most reward cards.

The best way to minimize your interest is to pay with your credit card then use the grace period until your statement is due then shift the balance to the LOC.

Not true, read the fine print. The grace period is only applicable if you pay the full balance owing within that time period. If you don't pay the full balance then there is no interest free grace period and you get charged interest from the day the transaction is made.

Also, I think they charge interest on a daily basis not a monthly basis.

[pheoxs]

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Also note once interest is triggered, credit cards charge you interest from the purchase date, even if you are only one day past the date that would trigger interest on the entire bill. Cash advance gets interest charged immediately.

Ah, my bad.

[Thaco]

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All things being equal you'd pay more interest on the LOC because the 0 grace days. However no LOC will have the same interest rate as a credit card. Most unsecured LOC are around 8% (give or take a few %) assuming you have decent credit whereas most cards start at 12% for low interest cards (typically with fees) and go up to 22% for most reward cards.

The best way to minimize your interest is to pay with your credit card then use the grace period until your statement is due then shift the balance to the LOC.

untrue in my situation, which is why i said assume the rates are the same... i have a grandfathered capital one MC at prime plus 0.9% and just got an unsecured LOC to buy my new travel trailer at prime +1.53% so i was just wondering if it was going to be logical to carry some of the balance on the credit card

i dont intend it to take me longer than 6 months to pay it off, just trying to figure out what the most efficient way to deal with it is.

[spike98]

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untrue in my situation, which is why i said assume the rates are the same... i have a grandfathered capital one MC at prime plus 0.9% and just got an unsecured LOC to buy my new travel trailer at prime +1.53% so i was just wondering if it was going to be logical to carry some of the balance on the credit card

i dont intend it to take me longer than 6 months to pay it off, just trying to figure out what the most efficient way to deal with it is.

Do you get points with a credit card that would be more than the interest you would pay on the LOC?

For me, regardless of what i pay down, i ALWAYS maximize the amount i can put on a CC to get the 1.75% cash back.

[Thaco]

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Do you get points with a credit card that would be more than the interest you would pay on the LOC?

For me, regardless of what i pay down, i ALWAYS maximize the amount i can put on a CC to get the 1.75% cash back.

yeah that's actually one of the avenues i have been taking, i have a CB card with high interest, so i have been using that for my daily spend, then doing a balance transfer to my low interest card (same rate, no fee).. works well for every day purposes but for a large item it's gonna be a bit different (also i doubt a rv place is gonna let me put 30k on a credit card even if my limit was that high)

[spike98]

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yeah that's actually one of the avenues i have been taking, i have a CB card with high interest, so i have been using that for my daily spend, then doing a balance transfer to my low interest card (same rate, no fee).. works well for every day purposes but for a large item it's gonna be a bit different (also i doubt a rv place is gonna let me put 30k on a credit card even if my limit was that high)

No of course not, but you can put down the max and draw from the LOC before the grace period is up for some cash back and a smidge of interest savings. Typically i find places will allow $3-$5k on the credit card.

[benyl]

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untrue in my situation, which is why i said assume the rates are the same... i have a grandfathered capital one MC at prime plus 0.9% and just got an unsecured LOC to buy my new travel trailer at prime +1.53% so i was just wondering if it was going to be logical to carry some of the balance on the credit card

i dont intend it to take me longer than 6 months to pay it off, just trying to figure out what the most efficient way to deal with it is.

I don't know why you are bothering with this calc. 0.9% is basically free money. A $20,000 trailer that you pay $1,000 / month for will take you 20 months to pay for and you will pay $160 in interest.

Interest alone on a $20K LOC at 3.28% = $55 month.

[ercchry]

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I don't know why you are bothering with this calc. 0.9% is basically free money. A $20,000 trailer that you pay $1,000 / month for will take you 20 months to pay for and you will pay $160 in interest.

Interest alone on a $20K LOC at 3.28% = $55 month.

PRIME + 0.9%... not exactly free money

[max_boost]

Am I reading this right.

I would buy it with the credit card and get the points and then use the LOC to pay it off.

[Thaco]

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I don't know why you are bothering with this calc. 0.9% is basically free money. A $20,000 trailer that you pay $1,000 / month for will take you 20 months to pay for and you will pay $160 in interest.

Interest alone on a $20K LOC at 3.28% = $55 month.

yeah prime plus.

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Am I reading this right.

I would buy it with the credit card and get the points and then use the LOC to pay it off.

yeah that would be ideal, but i dont know any place that would eat the CC fees on a 30k purchase

More or less i am just curious about what's cheaper for carrying the balance for a few months while we pay it down. Just wanted to make sure i wasn't missing some glaring technicality which would make one a much better or worse option than the other.

CC is prime+0.9
LOC is prime+1.53 so really its not going to be a significant difference. realistically 0.05% per month, if they're calculated the same.

[ercchry]

I’d be more concerned about over utilization vs rate

[Thaco]

Yeah I wouldnt go all in on any product, it'd be max 60% utilisation on any 1 item (like 20% overall).. and as mentioned it'd be short term, 6months is the goal... but honestly we have stellar credit and no intentions to use it again for a long time.

[sabad66]

every balance transfer offer i've seen from my CCs always has at least a 1% fee, so watch out for that if that's part of your strategy.