Why is the “adjusted balance” method of financing the least expensive for consumers?

Adjusted balance method of financing is least expensive for consumer because it charge interest on the ending balance. This method charge a very low interest rate as the ending balance is small.

Step-by-step explanation:

As compare to average daily balance method, it is quite cheaper. It does not charge on daily basis consumption. Instead it charge on the net balance at the end of each billing cycle.

The most complicated method of calculating finance charges is the adjusted daily balance method (ADB). Let’s say you have a balance of $300 as of May 1. On May 16, 15 days into May, you make a purchase of $50. Then, 16 days later on June 1, your finance charge is calculated. The ADB method calculates a daily balance of $300 for 15 days and a daily balance of $350 for 16 days. The average daily balance is a calculation based on the 31 total days in May. Here is the equation:

(15 × $300 + 16 × $350) ÷ 31 × 0.01 = $3.26.

In this equation, the 0.01 is for the 1%. Note that on June 1, you would owe for the $350 for the purchases plus the finance charge, for a total of $353.26.

This method gives you a lower finance charge than the ending balance method would. The ADB method is also fairer, since you did not use the $50 credit for the purchase you made for the entire month; you only used it for half of the month, starting on May 16.

Understanding the different calculation methods for finance charges and knowing which one is applied to your credit card is an important part of maintaining your financial health.

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