Financial Planning Advices » Financial Terminology » What is Average Daily Balance?
What is Average Daily Balance?
The finance charge you are subject to can be calculated in a number of ways. One of them is the average daily balance (also known as ADB) method. The following formula is applied for the calculation of the finance charge using the average daily balance model:
Finance Charge = (ADB x APR x Billing Cycle Days) / Days in Year
As you can see from the formula above, the models considers the balance that is owed by the credit holder during every day of the billing cycle, which is divided by the billing cycle's number of days. APR is the third multiplier used. The result is divided by the number of days in the year under consideration.
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