Calculating interest of a credit card is complicated, that’s why it’s exceptional left to automation. Still, you ought to comprehend it works due to the fact your credit card APR and balance affect your budget. Your owed interest owed is decided through applying your APR to your day by day average stability all through your billing period.

Here we’ll breakdown how interest in a credit card is calculated, and you’ll also locate some helpful pointers for how to avoid paying credit card interest altogether.

How Does Credit Card Interest Work?

When you operate your credit card, you’re borrowing money from the credit card agency with the option of repaying the complete borrowed amount by using the due date to your statement, or paying a minimum month-to-month charge, which is delivered to the balance for as long as it stays unpaid.

For each month which you don’t pay the total stability due, you must at the least pay the minimum month-to-month fee, which includes the interest rate. The APR that credit card agencies fee is often charged on your statement. APR Interest Rate can variety from 12.49% – 25.49% relying on wherein you stay and the credit card you hold.

How to calculate your APR?

To calculate how much interest you’ll be charged, you’ll want to recognize your average every day balance, the range of days in your billing cycle and your APR.

Let’s say you have a credit card and an average daily purchase balance of $2,000 at the end of your 30-day billing cycle. You also have a variable purchase APR of 19.99%.

Here’s how to calculate your interest charge:

Divide your APR by the number of days in the year.
0.1999 / 365 = a 0.00055 daily periodic rate
Multiply the daily periodic rate by your average daily balance.
0.00055 x $2,000 = $1.10
Multiply this number by the number of days (30) in your billing cycle.
$1.10 x 30 = $33.00 interest charged for this billing cycle

The math requires some work, but the concept is simple: Carry a balance, and you’ll pay interest. The longer you carry the balance the more interest that adds up.

Leave a Reply