The interest that might accumulate on an interest-bearing account, such as a credit card, loan, line of credit, or mortgage, is referred to as residual interest. Normal credit card balances accrued in between billing cycles are subject to residual interest charges. It might also be known as trailing interest in this situation. A structured credit investment product’s interest payment to investors may also fall under this definition.
On revolving credit accounts, borrowers are only required to pay the minimum amount due each month, but many of them opt to pay off the entire debt. It can be a wise financial practice to pay off the entire debt on a credit account, as shown on a monthly statement. However, even if customers completely pay off their debt, interest fees may still apply. The residual interest is used in this situation.
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