Past Due Balance Method

Posted in Finance, Accounting and Economics Terms, Total Reads: 417

Definition: Past Due Balance Method

Past Due Balance Method is a method of calculating the interest charges applicable on the amount of loan or credit after particular time/date on which the payment was due.

Since the date has past on which the payment was due the method is known as past due balance method. The method is very often adopted by the credit card companies or the banks. The credit cards allow a person to make purchase until the limit of the credit offered by the credit card. The sole purpose of the credit is to allow the payment to be made later. Thus a later date is given to the customer each month. Normally the date remains same each month. The customer has to make payment to the company by that date. Until that date no interest will accrue in the balance. But if the customer is not able to make the payment by that date the interest starts to accrue past that date.

For Example: You have a credit card which has the repayment date of 10th of every month. Suppose you purchase a TV by the credit card for $10000. You will have to make the credit card payment by 10th of next month. Until then no interest will be applicable on your credit. If you fail to make the payment by 10th. Past that date the interest starts to accrue and you will have to pay higher.

Hence, this concludes the definition of Past Due Balance Method along with its overview.


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