Listen to a Business English Dialogue About Low balance method
Jerry: Hey Lily, have you heard of the “low balance method” in business and finance?
Lily: No, I haven’t. What does it mean?
Jerry: The low balance method is a way of calculating interest on a loan or account by using the lowest balance in the account during a specific period, typically a month.
Lily: So, it’s like taking the smallest balance to calculate interest charges?
Jerry: Exactly. It’s commonly used for accounts with fluctuating balances, like credit cards or lines of credit.
Lily: Are there any advantages to using the low balance method?
Jerry: One advantage is that it can result in lower interest charges for borrowers who frequently pay down their balances throughout the billing cycle.
Lily: Can you give an example of how the low balance method works?
Jerry: Sure, let’s say you have a credit card with a $1,000 balance at the beginning of the month, but you pay off $500 halfway through. With the low balance method, the interest would be calculated based on the $500 remaining balance, not the initial $1,000.
Lily: Are there any drawbacks to using the low balance method?
Jerry: One drawback is that it can sometimes lead to higher interest charges for borrowers who maintain consistently high balances throughout the billing cycle.
Lily: How do lenders determine which method to use for calculating interest?
Jerry: It depends on the terms of the loan or account agreement, as well as the lender’s policies and practices.
Lily: Thanks for explaining, Jerry. The low balance method sounds like an important concept for borrowers to understand.
Jerry: You’re welcome, Lily. It’s essential for borrowers to be aware of how interest is calculated on their loans or accounts to effectively manage their finances.