What is a disadvantage of the previous balance method for calculating interest?

The previous balance method for calculating interest primarily applies interest based on the total balance at the end of the previous billing cycle without adjustments for any payments made or new purchases. This means that if a consumer makes payments during the billing cycle, those payments do not immediately affect the interest calculation. The interest is still applied to the full previous balance, which can lead to higher interest charges than anticipated.

This method can be particularly disadvantageous for individuals who pay off their balances in full but still accrue interest based on the unpaid amount from the previous period. It lacks the flexibility of methods that incorporate adjustments for payments or changes in balance throughout the billing period, potentially leading to higher overall costs for the consumer. Therefore, applying interest to the total amount without adjustments is seen as a significant downside of the previous balance method.