The adjusted balance method uses the balance at the beginning of the billing cycle and subtracts any payments you made. Purchases are not included in the balance. This is the least expensive method of calculating finance charges.
The average daily balance method uses the average of your balance during the billing cycle. Each day's balance is added together and divided by the number of days in the billing cycle this is the most common way finance charges are calculated.
How it's calculated: The Company averages your daily balance. For instance, if you charged $100 on the first day of June and charged an additional $200 on the 16th, your average daily balance would be $200. That number times roughly one-twelfth your annual percentage rate, or APR, equals your monthly finance charge. Interest may be calculated on a daily or monthly basis.
