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Trailing interest, sometimes called final or
residual interest, is a method of calculation
whereby interest is charged right up until the day
of a full payment. Cardholders of banks that use
this method receive a bill with the balance owing
and interest accrued and pay it off in full. On
the next statement they are billed a "final"
amount of interest even if no purchases or cash
advances have been debited since. The reason for
this is that interest continues to accrue from the
time of the close of the previous statement until
the day the payment for that statement is actually
received.
In
comparison to the normal method of interest
calculation, this method is judged by many to be a
hidden and thus unfair cost. Uninformed
cardholders often inquire as to what amount they
need to pay by their due date in order to have
paid off their credit card in full and to stop
interest from accumulating. They then proceed to
pay off this amount under the belief that they are
finished paying interest charges, only to find
trailing interest on their next statement which
was posted to their account on the day of the
statement billing (so even if they check their
balance a day before that next billing date, it
would still show a zero balance).
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