Calculating Paypal Credit Interest

[Will795]

Hello, I was hoping someone could help me understand how to calculate monthly interest. I'm tripping up on some of the wording found here: https://creditapply.paypal.com/apply?guid=ZM1LV5J9&assetId=PPCMICRO

My understanding of Average Daily Balance is as follows:

DailyBalance = (StartingBalance + NewChargesAndFees - PaymentsMade)

AverageDailyBalance = (Summation (i = 1 => DaysInBillingCycle) DailyBalance_i) / DaysInBillingCycle

My understanding of Interest Charge is as follows:

Interest = AverageDailyBalance * DaysInBillingCycle *  (APR / 365)

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So lets go over an example: 

I make a $100.00 purchase, make no additional payments for the billing cycle, have a 10% interest rate, and have 28 days to pay off the bill - lets assume I have to pay interest this cycle.

PLEASE NOTE: DailyBalance_1 will represent day 1, _2 day 2, and so forth.

DailyBalance_1 = 100

DailyBalance_2 = 200

...

DailyBalance_28 = 2800

AverageDailyBalance = (DailyBalance_1 + DailyBalance_2 + ... + DailyBalance_28) / 28 = 100

DailyPeriodicRate = 0.10 / 365 = 0.0002739726 = 0.02739726 % interest per day

Interest = 100 * 28 * (0.0002739726) = 0.76712328

Total Payment = 100 + Interest = 100.76712328 

Is this accurate?

Thanks in advance! 

[DPCreations]

It's probably approximately correct.

Why does it matter since the monthly information is on your PayPal Credit statement?

[Will795]

I haven't used my Paypal Credit yet, so I wasn't aware that said information was available. I also want to confirm I am reading the documentation correctly.

Thanks!

[DPCreations]

As long as you pay your balance by the due date there is not interest, so the calculations don't matter.  If you don't pay your balance by the due date the interest rate is so high the the purchase becomes extremely expensive and the funds are wasted.  And, since you are losing so much in financing a little more doesn't matter and fine tuning the calcuations doesn't minimize the pain from the lost finance funds.

[Will795]

What I'm trying to understand is: does paypal have anything hidden in their interest rates that other CC companies don't have? As I initially said, I'm having a hard time parsing Paypal's credit ToS. More simply put.. if I have an interest rate of 19.99% on Paypal Credit, would using a standard interest calculator answer my questions? Or are there additional fees built into Paypal Credit that other Credit companies don't have built in.

You said " If you don't pay your balance by the due date the interest rate is so high the the purchase becomes extremely expensive and the funds are wasted.", but what does that even mean? High is subjective and might not be "high" in my terms. For example: If I were to make a a $300.00 purchase at 19.99% APR,  according to an interest calculator the total cost would come out to $314.99 if I paid it back over 3 months. $14.99 additional dollars to pay back a $300.00 purchase wouldn't be "high" to me, but would be "high" to others.

[DPCreations · Accepted solution]

High is anything above 10%, really high is over 15%--like credit cards.  You purchase $1000 and make minimum payments, you will have spent an extra almost $200 just for that immediate gratification  and the cost continues.  Now an equity loan at 3% reasonable.  Whether 18 or 19.99 doesn't make much difference; it's a lot of money for that gratification.

As for hidden costs, no different than a credit card; they are all explained.  You have a grace period to pay off a non-promotional balance and months for a promotional balance.

[Will795]

Understandable. I have some spending philosophies that would require a rather in-depth conversation, but as a general rule of thumb I agree with your assessment; especially the part about getting that "immediate" gratification.  In fact, I've done some digging into Paypal Credit and it sounds like a lot of "users" max out their credit line relatively quickly - I think I read around 30% somewhere?

Regardless, much thanks for the responses.