Hi Bill...

What is legal vs. what is not legal is a function of the state the business is domiciled. All of this falls under the guise of usury fees. Some states have a cap on what you can charge. Other states, like South Dakota do not. That is why many credit card companies operate out of SD.

Calculating interest is a fairly simple process. You have a balance due, and an interest rate. At 18%, the simple interest rate per month is 1.5%. So, if you have $1,500 that is 30 days past due, the interest is:

$1,500 * .015 = $22.50

Some folks charge interest on the interest. So, when the bill goes 60 past due, is the interest calculation this, in which only the principal is subject to interest:

$1,500 * .015 = $22.50

Or this:

$1,522 * .015 = $22.83

So, as far as what is legal, you need to check with your state. 18% I believe is the max in many states. SD, there is no limit. IMHO, 18% or 1.5% per month is resonable. Once you know the rate, the calculation is easy...



>I am searching for a simple explanation/formula for computation
>of finance charges. I am programing an invoicing application for a
>jeweler. A typical invoice might be for one ring at $1500.
>
>After a 30 day grace period, how do I go about computing the maximum
>legal finance charge (and how does one discover that maximum?).
>Is it just a certain percentage per day. And I guess you have to
>make certain that the yearly annual percentage is below the legal maximum.
>
>I am looking at the back of a credit card bill to get some tips.
>
>The bottom of the bill posts a daily rate of .05918% and an annual percentage of 26.60. The back of the credit card statement mentions
>something called "the Periodic Rate".
>
>I used a search engine for "finance charge computation/formula"...
>and didnt really find a simple formula or explanation.
>
>The credit card statment speaks of computing an "average daily balance" with is a level of complication beyond what I need. I simply need to compute finance charges on one invoice that is more than 30 days old.
>
>I suppose I could compute one years finance charge at 18%, and then figure what it would be per day.
>
>Thanks for any tips/suggestions, explanations.
>
>I dont really need dBase code, just a simple formula/explanation
>of how to compute.
>
>Thanks!
>
>Bill Buell