When you finance a product or service with the UGA Finance Program, consumer payments will be based on simple interest calculations (not compounding). This means that the interest accrual is being charged based only on the remaining principal balance. This differs from compounding interest, where interest accrues on the principal amount and on already assessed interest.
Here is how we calculate interest:
We figure the interest charge on your Account separately for each balance type. We do this by applying the daily rate to the daily balance for each day in the billing cycle. A separate daily balance is calculated for the following balance types, as applicable: purchases and balances subject to different interest rates, plans or special promotional financing offers. See below for more details on how this works.
- How to get the daily balance. We take the starting balance each day, add any new charges, and subtract any payments or credits. This gives us the daily balance.
- How to get the daily interest amount. We multiply each daily balance by the daily rate that applies.
- How to get the starting balance for the next day. We use simple interest and only charge interest based on your principal balance which we get from step 1. We DO NOT add the daily interest amount in step 2 to the daily balance from step 1.
- How to get the interest charge for the billing cycle. We add all the daily interest amounts that were charged during the billing cycle.
Example
Say you start with a $10,000 Balance at a 17.9% Interest Rate.
For your contract to be calculated with simple interest, it would be as follows:
$10,000 * (.179/365) = $4.90/Day
If you had NO Payments and NO new charges for a 30-Day billing cycle that would be:
$147 in Interest
If this was compounding:
$10,000 * (.179/365) = $4.90
The next day the $4.90 would be rolled into the Daily Balance and be used in the interest calculation.
$10,004.90 * (.179/365) =
Over 30 days, this results in = $150.25 in interest charges
As it shows, when a contract is charged simply, the monthly interest will be lower than that of a contract that is compounding, and in the long term, will save the consumer money.