Here’s how some different methods of calculating finance charges affect the cost of credit:

	Average Daily Balance (including new purchases)	Average Daily Balance (excluding new purchases)
Monthly rate	1 ½%	1 ½%
APR	18%	18%
Previous Balance	$400	$400
New Purchases	$50 on 18th day	$50 on 18th day
Payments	$300 on 15th day (new balance = $100)	$300 on 15th day (new balance = $100)
Average Daily Balance	$270*	$250*
Finance Charge	$4.05 (1 ½% x $270)	$3.75 (1 ½% x $250)

* To figure average daily balance (including new purchases): ($400 x 15 days) + ($100 x 3 days) + ($150 x 12 days)/30 days = $270

** To figure average daily balance (excluding new purchases): ($400 x 15 days) + ($100 x 15 days)/30 days = $250

	Adjusted Balance	Previous Balance
Monthly rate	1½%	1 ½%
APR	18%	18%
Previous Balance	$400	$400
Payments	$300	$300
Average Daily Balance	N/A	N/A
Finance Charge	$1.50 (1 ½% x $100)	$6.00 (1 ½% x $400)

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