Compound interest and credit card balance
Credit cards are very handy to pay for various purchases. The possibility to repay your balance in several months is also attractive. Hovewer, it is important to take the compound interest into consideration, and its influence on the total cost. We offer you some explanations.
What are compound interests?If you choose not to pay the total amount of your credit card balance, an interest will be charged on the balance due. This interest will then generate new interest: this is the compound interest. In case you have an important amount to pay and decide to pay it in several months, the compound interest could represnt an higher cost than expected.
An exampleLet’s say you have a 2’000 Chf balance due on a credit card, and you choose to pay 100 chf / month for the reimbursement. How many months for a full repayment, and how high will be the compound interest? Par exemple vous avez une facture de 2’000 Chf de carte de crédit, et choisissez de la rembourser avec des mensualités de 100 Chf, en combien de mois sera remboursée votre facture si l’on tient compte des intérêts et intérêts composés, et combien d’intérêts composés payerez-vous au total? We save you the calculation details here, but with a rate of 15%:
- You’ll need 24 months to repay your balance due.*
- You will pay a total interest of 280 Chf. *