Adjusted Balance Method
The adjusted balance method calculates periodic interest after subtracting payments and credits from the opening-cycle balance.
Compare precomputed add-on finance charges with the adjusted balance method used for periodic open-end interest.
Precomputed interest and adjusted balance answer different calculation questions. Precomputed interest establishes a closed-end loan’s scheduled finance charge at origination. Adjusted balance determines the amount to which a periodic rate applies for an open-end billing cycle.
| Concept | Calculation level | Main inputs | Main decision use |
|---|---|---|---|
| Precomputed Interest | Entire scheduled loan term | Original principal, quoted rate, term, payment count | Compare APR, total payments, and early-payoff rebate |
| Add-on interest | One structure for a precomputed charge | Original principal multiplied by rate and term | Understand why quoted add-on rate differs from APR |
| Unearned interest | Remaining unearned portion of a precomputed charge | Allocation method and payoff date | Determine potential early-payoff rebate |
| Adjusted Balance Method | One open-end billing cycle | Opening balance minus payments and credits, then periodic rate | Reconcile a periodic card interest charge |
The Precomputed Interest guide owns add-on interest and unearned-interest explanations because separate pages would repeat the same origination, payment, and payoff analysis.
For precomputed closed-end credit, inspect amount financed, finance charge, APR, total of payments, allocation method, extra-payment instructions, and payoff rebate. Equal monthly payments do not prove the loan is precomputed.
For adjusted-balance open-end credit, inspect each APR category, opening balance, payments, credits, periodic rate, new transactions, grace-period status, and the interest calculation shown on the statement.
An adjusted balance is not the unpaid balance after every loan payment, and precomputed interest is not merely a fixed rate. One is a billing-cycle balance method; the other is a term-level finance-charge method. Use the contract’s exact terminology and reconcile it to the disclosed cash flows.
Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.
The adjusted balance method calculates periodic interest after subtracting payments and credits from the opening-cycle balance.
Precomputed interest is calculated for a loan's scheduled term at origination and allocated across the contractual payments.