Previous balance method

Method of calculating finance charges based on the account balance at the end of the previous month.

Previous Balance Method

An accounting method in which interest owed on a good or service is calculated based on what is owed at the end of the month. Most credit cards calculate cost and interest on top of the balance at the end of the previous month. Payments on instruments that use the previous balance method are due at the beginning of the month.

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One of the least advantageous is the previous balance method. Finance charges are based on the amount owed at the end of the previous billing cycle.

Know how to compare credit offers

The three most common are the previous balance method, the adjusted balance method, and the average daily balance method.

(1) Previous Balance Method. Under this method the finance charge is applied to the beginning balance while ignoring both account payments and new charges.

Chapter 11: Credit, debt & bankruptcy

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