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# How to calculate the apr on a credit card

Understanding how your credit card’s Annual Percentage Rate (APR) is calculated and applied to your outstanding balances is crucial to maintaining control over the growth of your overall credit card debt. Your credit card’s Annual Percentage Rate is the interest rate you are charged on any unpaid credit card balances you have every month. By figuring out the daily periodic rate on your credit cards, you can have a better understanding of how compound interest is affecting how much you’re paying back in interest. Your monthly statement may break down your APR yearly or monthly on your monthly statement, but you can break it down to a monthly APR yourself. This information could help you make decisions about which credit cards you may want to focus on paying down quickly (if they are costing you too much in daily interest) and how much it is costing you each day to borrow from your credit card company. Monthly APR can also help you understand how much it is costing you to carry a balance each month that you are not paying down the entire balance.

Below, you will find steps and formulas for calculating both your daily and monthly percentage rates, which are based on your APR, and how they are applied to your balances.

## Will I have to pay Annual Percentage Rate charges?

If you are carrying a credit card balance, you will be charged APR interest at a rate that is calculated and determined by your credit card issuer. The three main types of APR are fixed rate, variable rate, and promotional rate. With fixed rates, your APR is likely to stay the same throughout the time you carry your card unless otherwise stated. Variable rates may increase or decrease depending on federal rates. Promotional rates include zero-interest or low-interest periods offered as introductory incentives by credit card companies.

You’ll know which rates are associated with your credit card by checking your card member agreement and monthly credit card statements.

## How to calculate your monthly APR

Calculating your monthly APR rate can be done in three easy steps:

• Step 1: Find your current APR and current balance in your credit card statement.
• Step 2: Divide your current APR by 12 (for the twelve months of the year) to find your monthly periodic rate.
• Step 3: Multiply that number with the amount of your current balance.

For example, if you currently owe \$500 on your credit card throughout the month and your current APR is 17.99%, you can calculate your monthly interest rate by dividing the 17.99% by 12, which is approximately 1.49%. Then multiply \$500 x 0.0149 for an amount of \$7.45 each month. Therefore, you should have been charged \$7.45 in interest charges based on your \$500 balance.

## How to calculate your daily APR on a credit card

Your credit card company may calculate your interest with a daily periodic rate.

Calculate your daily APR in three easy steps:

• Step 1: Find your current APR and current balance in your credit card statement.
• Step 2: Divide your APR rate by 365 (for the 365 days in the year) to find your daily periodic rate.
• Step 3: Multiply your current balance by your daily periodic rate.

### If the steps above seem confusing, here’s an example of how to calculate APR charge on a credit card:

If your current balance is \$500 for the entire month and your APR rate is 17.99%, you can find your daily periodic rate by dividing your current APR by 365. In this case, your daily APR would be approximately 0.0492%. By multiplying \$500 by 0.00049, you’ll find your daily periodic rate is \$0.25. In order to calculate the monthly interest charges to your balance you simply need to multiply this daily periodic rate by the number of days in your billing cycle. For most credit cards the average billing cycle is about 30 days.

With this in mind, it is prudent to keep on top of payments each month in order to minimize this effect of daily compounding interest.

The steps above will put you on the right path to not only learning how to calculate APR on a credit card, it will also assist you in learning how to use your credit card efficiently.

## Why should I know my daily and monthly APR?

Your credit card balance can fluctuate on a daily, weekly and monthly basis. By calculating your daily and monthly APR, you can better understand how much of your money is going to interest. Understanding how much of your money is going to interest rather than your balance may also motivate you to pay off your debt or help you decide what purchases are worth putting on the credit card. By breaking down your interest rates on a daily and monthly basis, you can learn more about the interest you are accruing over time and use this information to make some of your financial decisions.

## The APR helps evaluate loan costs

Image by Emily Roberts © The Balance 2019

The annual percentage rate (APR) of a loan is the interest you pay each year represented as a percentage of the loan balance. ﻿ ﻿ For example, if your loan has an APR of 10%, you would pay \$100 annually per \$1,000 borrowed. All other things being equal, the loan with the lowest APR is typically the least expensive, but it’s usually more complicated than that.

Although APR is not perfect, it provides a helpful starting point for comparing interest and fees from different lenders.

## Understanding APRs

APRs include fees in addition to interest charges and convert those fees to an annualized cost. ﻿ ﻿ Understanding how APRs work helps you to better understand the total cost of borrowing.

Don’t assume the lender with the lowest interest rate is the least expensive option. Calculate your APR, which includes all associated fees, to help you identify the best deal.

Lenders often quote different numbers that mean different things. Some might quote interest rates without including additional fees in their advertisements, while others might list everything upfront. Even with honest, completely transparent lenders, it still can be difficult to tell which loan is the least expensive. APRs help you get an apples-to-apples comparison of loans by accounting for every cost related to borrowing.

## Calculate Monthly Payment

The first step to calculating your APR is figuring out the amount of your monthly payment (p) using your principal balance or total loan amount (a), periodic interest rate (r), which is your annual rate divided by the number of payment periods, and your total number of payment periods (n): ﻿ ﻿

• Formula: a/<[(1+r)^n]-1>/[r(1+r)^n]=p

Let’s say you borrow \$100,000 with a 7% interest rate using a 30-year fixed-rate mortgage. To calculate the monthly payment, convert percentages to decimal format, then follow the formula:

• a: 100,000, the amount of the loan
• r: 0.00583 (7% annual rate—expressed as 0.07—divided by 12 monthly payments per year)
• n: 360 (12 monthly payments per year times 30 years)
• Calculation: 100,000/<[(1+0.00583)^360]-1>/[0.00583(1+0.00583)^360]=665.30, or 100,000/150.3081=665.30

The monthly payment is \$665.30. Check your math with an online payment calculator.

Microsoft Excel and Google Sheets, among others, provide built-in functions that do most of the work for you. In Excel, for example, you can calculate your monthly payment by typing the following formula into a cell: ﻿ ﻿

• =PMT(rate/number of annual payments, the total number of payments, loan amount)

For the example above, the formula would look like this:

• =PMT(0.07/12,360,100000)

Following the same example, use the monthly payment you calculated plus any upfront fees rolled into the \$100,000 you borrowed to calculate your APR. If \$1,000 of the amount borrowed was used for closing costs, the value of the loan is \$99,000, and that is the amount used to calculate the APR.

Again, spreadsheets like Excel make this calculation easy. Simply type the following formula into a cell: ﻿ ﻿

• =RATE(total number of payments, -monthly payment, loan value)

For this example, the formula would look like this:

• =RATE(360,-665.30,99000)

Note that the monthly payment is represented as a negative number based on the previous calculation used to determine the amount.

You should get a result of 0.5917%. This is still a monthly rate, so multiply it by 12 to get 7.0999%, which is your APR.

## Calculate Your APR on Payday Loans

Payday loans might appear to have relatively low rates, but the fees typically make the overall cost of borrowing quite high. Sometimes the charges don’t seem terrible. You might gladly pay \$15 to get cash quickly in an emergency, for example. However, when you look at these costs in terms of an APR, you may find that there are less expensive ways to borrow. ﻿ ﻿

For example, a \$500 payday loan that must be repaid within 14 days with a \$50 fee has an APR of 260.71%. The Consumer Federation of America explains how to calculate it: ﻿ ﻿

1. Divide the finance charge by the loan amount. In this case, \$50 divided by \$500 equals 0.1.
2. Multiply the result by 365 to get 36.5.
3. Divide the result by the term of the loan. In this case, 36.5 divided by 14 is 2.6071.
4. Multiply the result by 100 to turn the answer into a percentage: 260.71%.

## APRs on Credit Cards

With credit cards, your APR tells you the interest payments, but it doesn’t include the effects of compounding interest, so you almost always pay more than the quoted APR. ﻿ ﻿

If you carry a balance on your credit card, you pay interest on the money you borrowed and on the interest that already has accrued. This compounding effect makes your cost of borrowing higher than you might think.

The APR for credit cards includes interest costs but not the other fees you pay to your credit card issuer, so you have to research and compare those fees separately. Annual fees, balance transfer fees, and other charges can add up. As a result, a card with a slightly higher APR might be better, depending on how you use your card. In addition, your credit card might have different APRs for different types of transactions. ﻿ ﻿

## APRs and Home Loans

With mortgages, APR is complicated because it includes more than just your interest charges. ﻿ ﻿ Any quotes you get may or may not include closing costs you have to pay. Plus, you may have to make additional payments to qualify for the loan, such as private mortgage insurance. Lenders can choose whether or not certain items are part of the APR calculation, so you have to look carefully and know how to do your own calculations. ﻿ ﻿

It’s also important to know how long you’ll keep a loan to make the best decision. For example, one-time charges and upfront costs may drive up your immediate costs to borrow, but the APR calculation assumes you spread those charges out over the full term of your loan. As a result, the APR appears lower on long-term loans. If you plan to quickly pay off a loan, APR typically underestimates the impact of upfront costs.

When banking, you will have to be able to monitor lots of funds and keep up with all your accounts and this can get confusing. It is necessary to know how to calculate credit card’s annual percentage rate (APR) and in this guide, we’ll show you how.

In this guide we will breakdown how to calculate APR on a credit card and everything you need to know about them.

## What Is APR?

The basis of credit card interest is finding the annual percentage rate. The APR on your credit card is the amount of interest charged on your funds whenever you carry a balance over to the following month. The higher a credit card’s APR, the more interest you’ll pay. You can avoid this credit card interest by paying your monthly balance in full each month.

For credit cards, interest is usually expressed as a yearly rate, but credit card companies will use it to calculate the interest charged during your monthly statement period.

## Different Types of Interest and APR

It is imperative to read about interest and details in your card’s fine print. You should review it to see of any unexpected fees that may occur. Here are the different types of APR and Interest:

A credit card can either have a variable or fixed APR. A fixed APR will typically always remain the same, however, a variable APR, usually changes with the prime rate. Many variable interest rates start with the prime rate, then add a margin. The result is your variable APR.

Credit cards generally have several different types of APR you’ll want to look out for.

• Purchase APR: The interest rate applied to purchases made with the card.
• Balance transfer APR: The interest rate applied on the balance transferred from one credit card to another.
• Cash advance APR: The interest rate applied to the amount of cash borrowed from your credit card. 4
• Penalty APR: The interest charged when you make late payments or violate the card’s other terms and conditions.

## How to Calculate Your APR

If you are looking to calculate how much interest you are going to be charged, you will need to know a few things. These include your average daily balance and the numbers of days in a billing cycle. Then you will need to convert your Annual Percentage Rate into a daily percentage rate.

To do so, you will first need divide your APR by the number of days in a year or 365. Now with that rate, you will have the daily percentage interest rate. At the end of each day, the card issuer will multiply your current balance by the daily rate to come up with the daily interest charge. That charge is then added to your balance the next day, a process called compounding.

## Watch Out for Penalty APRs

It is imperative, that when paying your monthly statement, that you pay your monthly balance in full. By paying your balance in full, you can avoid Penalty APRs or monthly fees.

Your credit card issuer may bump up your APR to a penalty APR if you are more than 60 days late on making the minimum payment due on your account.

You will also need to keep that penalty APR for a certain amount of time before your credit card issuer will even think about lowering your APR back to normal. That means six months or more of on-time payments with the penalty rate in effect.

It is important to stay on top of your funds in order to avoid credit card debt.

## Conclusion

It’s a good idea to understand how your credit card issuer will calculate interest charges on your credit card. Different credit card issuers may use slightly different formulas, but you can calculate your interest charges as long as you know your credit card’s annual percentage rate (APR).

In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.

For all you credit card holders and future credit card holders, you might be wondering if there is a cost to carrying a credit card balance. To figure out how much you’re going to pay in interest, you need to know how your card’s annual percentage rate (APR) works.

The APR is basically the yearly interest rate charged on a credit card. The higher the APR, the more interest you will have to pay whenever you carry a balance on your card. Below, we will go over in depth what that means and ways to calculate it.

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### What Is APR?

Before trying to figure out how to calculate your credit card interest is, we’ll look into what APR is. Basically, the APR on your credit card is the annual rate that your card issuer will charge you whenever you carry a balance. The higher a credit card’s APR, the more interest you’ll pay. If you always pay your bill in full and you never carry a balance, then APR and interest charges won’t affect you.

There are two main types of APR that a credit card issuer might use. Some cards will have a variable APR and others will have a fixed-rate APR. Variable rate credit cards have an interest rate that follows another index, such as the U.S. prime rate. So when the U.S. prime rate changes, the interest rate on those credit cards will also change. Keep in mind thought that credit cards with a variable APR may change monthly, quarterly or yearly.

### Calculate Your Daily Periodic Rate

Your credit card issuer will use your card’s APR to determine how much you pay in interest. First, it converts that annual rate into a daily rate. This is the daily periodic rate (DPR).

To calculate your credit card’s DPR, you need to divide your credit card’s APR by 365. Issuers use this number to represent the number of days in a year. There are a couple of things to note here. Some issuers will use 360 instead of 365. You will need to check with your individual card to make sure you’re using the correct number. Purchases, balance transfers and cash advances also have different APRs for cards. Make sure that you are using the correct APR when for your calculations.

Once you have divided the APR, you are left with the DPR. Using this number, multiply it by the amount that you owe and you will be left with amount of interest that you owe after each day. The daily amounts are added up into one lump sum at the end of your billing cycle (i.e. the end of the month). That sum is your interest charge for the month. However, there is one more number to consider: your average daily balance.

### Calculate Your Average Daily Balance

One big challenge with calculating credit card interest is that your credit card balance can change over the course of a month. However, your balance does go down if you make a payment.

Interest on a credit card applies to your total balance but what happens when your balance changes? To handle that, your credit card issuer will use your average daily balance to calculate interest charges. This is the average of the daily balances that you owed over that month or billing cycle.

To calculate this average you need to write down the balance that you owed at the end of each day of the billing cycle and then average all those numbers. This is the number your card issuer will use to calculate interest.

Now that you know your DPR and your average daily balance, you can use this information to calculate how much you should owe in interest at the end of the month.

### Watch Out for Penalty APRs

If your payments are being made nearly 60 days late, then your credit card issuer may bump up your APR to a penalty APR. This could potentially be twice as high as your standard APR.

Also, you will need to keep that penalty APR for a certain amount of time before your credit card issuer will even consider lowering your APR back to normal. This could mean six months or more of on-time payments with the penalty rate.

That is why it is crucial that you are careful with your finances, including your credit card, to avoid triggering this higher interest rate. A good tip is to set up payment reminders so you don’t forget to make those minimum payments. If you need to, you could even change the due date of certain bills so that you’re sure you have time for your paycheck to hit to make those payments.

### Bottom Line

Before signing up for any form of credit, such as credit cards, it is important to figure out how your issuer will calculate interest charges. Different credit card issuers will use a different formula, but you will always be able to calculate your interest charges as long as you know your credit card’s annual percentage rate (APR). For more posts like this, check out our list of bank guides!

To understand how much you’re going to pay in interest, you will need to understand how your card’s annual percentage rate (APR) works.

Below, you can find out how to calculate APR on a Credit Card.

## What is APR?

APR is defined as the yearly interest rate charged on a credit card.

The APR on your credit card is the annual rate at which your card issuer will charge you interest whenever you carry a balance. The higher a credit card’s APR, the more interest you’ll pay.

If you always pay your bill in full and you never carry a balance, then APR and interest charges won’t affect you.

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### Variable vs Fixed

There are two main types of APR that a credit card issuer might use. Some cards will have a variable APR and others will have a fixed-rate APR.

Variable rate credit cards have an interest rate that is tied to an index such as the U.S. prime rate. When the U.S. prime rate changes, the interest rate on those credit cards will change as well. A credit card with a variable APR may change monthly, quarterly or yearly.

The interest rates with a fixed-rate APR will not change with any index. Those rates can still change but your card issuer is required by law to give you plenty of notice before any change.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 requires credit card issuers to give 45-day advance notice of any interest rate increases.

## How to Calculate APR?

There are several steps to follows when calculating APR:

1. Calculate Your Daily Periodic Rate
• To calculate your credit card’s DPR, you need to divide your credit card’s APR by 365
• Issuers use this number to represent the number of days in a year
• Some issuers will use 360 instead of 365. You will need to check with your individual card to make sure you’re using the correct number
2. Calculate Your Average Daily Balance
• To calculate this average you need to write down the balance that you owed at the end of each day of the billing cycle and then average all those numbers
• Multiply that DPR by your average daily balance and by the number of days in the month

## Author’s Verdict

Knowing how to calculate how much your credit card issuer will calculate interest charges on your credit card is important when understanding your finances.

Hopefully the above information helps you understand how to calculate APR on a Credit Card.

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Most credit card issuers calculate interest charges using a method called the ‘average daily balance’. In order to find the sum, you multiply the mean outstanding balance on your bill at the end of each day by the Daily Periodic Rate(DPR) and the number of days in your billing cycle. The entire process involves quite a bit of jargon and basic arithmetic. This guide is meant to help you understand each step of the calculation, as well as explaining key terms to know.

## Calculating Credit Card Interest (APR) Step by Step

Calculating credit card interest is an involved process. It requires a pen, paper and calculator— or, for more technical users, Excel or other computer tools can work as well. There are four steps to the calculation, which we have discussed below. Of the four steps, finding your average daily balance will be the most challenging. It requires you to know exactly what your balance was at the end of each day during the last billing cycle. If you’re not interested in the details at all, we recommend using our interest calculator instead.

Step 1. Figure out how often your credit card interest is compounded. This means how often the interest is added onto your principal, or original, balance. Most credit card issuers today compound interest on a daily basis. You can find out what your particular bank uses by looking it up in the pricing information of your card, sometimes called the Schumer Box. Look for the line “How We Will Calculate Your Balance.” All consumer credit cards are required to include this information there. If the document says it uses a method called “daily balance”, your interest is compounded daily.

Step 2. Divide your card’s annual percentage rate (APR) to get the periodic rate. If your issuer uses a daily balance, divide the APR by 365. If the APR is compounded monthly, divide it by 12. For example, an APR of 14.99% compounded daily would have a periodic rate of (14.99% / 365) = 0.0004 = 0.04%. Remember that when dividing percentages with a calculator you need to convert them to a decimal—that means dividing them first by 100. Therefore, when written out fully, the previous calculation is (14.99 / 100) / 365.

Step 3. Find your average daily balance. This step requires you to know exactly what your end-of-day balance was each day within a billing cycle. For example, let’s say that for the first three days you had a \$300 balance on your card, then it went up to \$500 for the next 15 days, and finally up to \$1,000 for the last seven days. Your average daily balance would be \$616. This is calculated using the following formula:

(Day 1 Balance + Day 2 Balance + Day 3 Balance…) / total number of days in the billing cycle

Step 4. The final step is to put everything together. Multiply the periodic rate (Step 2) by the average daily balance (Step 3) and the number of days in your billing cycle. The result is the interest accrued by a credit card for a given period.

Note: Most credit cards have a minimum interest charge. The amount varies by bank, but is generally between \$1 and \$2. Therefore, if you follow the calculations outlined here and get an interest charge of \$0.50, you’re likely to pay more.

### Example calculation

Card A charges a 14.99% APR. For a given month, the card’s balance was as follows:

Day(s) Activity Balance
1-4 None \$0
5-10 \$200 purchase \$200
11-13 \$50 purchase \$250
14-18 \$500 purchase \$750
19 \$400 payment \$350
20 -25 \$200 purchase \$550

Given the above debt breakdown, the average daily balance for the card is:

To calculate the interest for the 25-day period, we multiply the average daily balance by the daily periodic rate and the number of days in the billing cycle. The DPR in this case is 14.99% / 365 = 0.041%. The average daily balance is \$374, and the number of days in the billing cycle is 25. Putting all that together we get: \$374 * 25 * 0.038% = \$3.83.

## Accounting for Grace Periods

Most issuers allow cardholders a set period of time to pay off their balance. Over the course of this so-called grace period, any new purchases added to the balance do not accrue interest. Therefore, if you manage to pay off your credit card bill within this grace period, you will not be charged any interest.

According to the CARD Act of 2009, you have 21 days to pay off your balance before interest starts to accrue. This time applies from the moment your bill is delivered to you—whether by mail or electronically. If your due date falls on a weekend or federal holiday, you have until the following business day at 5 p.m. to submit your payment.

## Credit Card APR Calculator

We’ve built a credit card interest calculator to help facilitate your calculations. Add as many credit card balances as you’d like below, along with their respective interest rates and the type of monthly payments you make. The calculator will show what your total interest payments will be, by the time you completely finish paying off your debt.

Understanding how credit card interest rates work is essential if you’re thinking about applying for a card.

Interest rates can indicate how much it’ll cost you to use your credit card, so you need to know how they work.

Credit card interest rates are usually quoted in terms of APR (annual percentage rate).

A low APR means you’ll have less interest to pay on your credit card debt. It will cost less to borrow money than if your credit card had a high APR.

### Compare credit cards

Compare a range of credit cards from 0% cards to rewards credit cards

You may not always have to pay APR because many credit cards offer interest fee periods. There’s more to choosing the right card than getting one with the lowest APR.

APR helps you to compare cards by averaging out the total costs over the year. However, interest is charged on a monthly basis.

This video explains how lenders calculate their interest rates and what your card will actually cost you.

Our credit card calculator estimates how the amount you repay each month affects how long it’ll take you to clear the balance:

## How to calculate credit card interest rates

The interest rate on a credit card is how much it costs you to borrow money.

It’s calculated as a percentage of the amount you’ve borrowed. The amount you owe as interest one month is then added to the total balance. This is known as compounding interest, and continues until you clear your balance. The longer it takes you to pay off your card, the more interest you pay.

How the interest is calculated varies between credit card providers. You can estimate the amount you owe by using an interest rate calculator. You will not be able to determine the exact amount because it depends on which calculation your credit card provider uses.

To find out the exact rate, contact your credit card provider.

## Minimum repayments

To ensure you never owe your card provider more than you should, always meet the minimum repayment.

The minimum repayment is shown on your monthly credit card statement. It’s the lowest amount you can repay each month without harming your credit file. It’s usually calculated as a percentage of the total balance or a set amount. For example, 1% of your balance (plus interest) or ВЈ10.

You can set up a Direct Debit from your current account to always meet the minimum repayment, even if the amount changes.

Just meeting the minimum amount means your monthly payments are low and affordable. But it also means you stay in debt for longer. And unless you clear the balance within an interest free period, you could end up paying a lot of interest.

### Low APR credit cards

Find a credit card with a low rate of interest to handle your regular payments

Minimum repayments are not interest-only (like mortgages), where you pay off the interest but nothing else. Under legislation introduced in 2011, minimum repayments have to be at least 1% of your balance, plus any interest.

As minimum repayments are calculated as a percentage of your balance, you’ll technically pay less and less over time. But you’ll still owe the credit card provider money because the balance will barely decrease.

As a general rule, if you can pay back more than the minimum amount, then do. Never pay less than the minimum or you could lose any benefits, be charged a fee or get a mark on your credit file.

## Avoid interest by repaying in full

Try to repay your credit card balance in full as often as you can (if not every time). The quicker you pay off your balance, the less it will cost you in interest.

Of course, this may not alway be possible. Especially if you’ve used your card to pay for a big purchase you could not afford upfront.

If thatвЂ™s the case, set up a Direct Debit of a fixed amount you know you can afford each month. Use the credit card calculator above to estimate how long it would take you to pay off your balance.

A monthly Direct Debit ensures you pay back your debt and keeps your credit file in good condition.

## Cut interest payments with a 0% balance transfer card

A 0% balance transfer card lets you shift your debt from one card to another. It can be a good way to avoid excessive interest payments.

Interest free periods are not indefinite. They are usually fixed for a a set amount of time. Make sure you know how long the 0% period lasts for. Once it expires you could find yourself paying a high level of interest.

### Balance transferВ credit cards

Find low feeВ balance transferВ credit cards with the lowest 0% interest period

## Other reasons you’ll be charged interest on your credit card

APR is not hte only interest you may have to pay on your credit card debt.

You’ll often also have to pay interest on:

• Cash withdrawals
• Balance transfers (if you cannot get a 0% balance transfer credit card)
• Foreign currency transaction fees
• Interest

You’re charged interest on cash withdrawals from the moment you take out the money. It’s charged at a daily rate, making withdrawing cash on a credit card very expensive.

Without a 0% balance transfer card, moving debt from one card to another could still cost you interest on your debt.

Thanks to foreign currency fees, you’ll be charged interest on your purchases abroad. Minimise this cost with a travel credit card. This is not the same as a card that gets you airmiles.

Unless you have a 0% interest card, the APR interest charge is added to your card balance. The interest is calculated on your total debt. This means you may have to pay interest on your interest!

## Stoozing – Use credit cards to boost your savings

Stoozing is the art of making money from borrowing on money transfer credit cards with 0% APR.

Here’s briefly how it works: 1. Use a credit card to transfer cash into a high interest savings account at the start of the interest-free period. 2. Let the money accrue interest in the savings account (aka, the stoozer). 3. Use that money to pay off balance on the credit card before the interest-free offer ends. 4. Keep the interest the cash earned in the savings account.

You have to find the best bank accounts, lowest transfer fees and carefully manage your card payments.

One of the most important factors in choosing a credit card is its interest rate, and it’s also important to know how to calculate credit card interest. All credit cards must disclose their annual percentage rate, or APR, which expresses their interest rates in a single annual number. Almost all credit cards charge interest only on balances that you don’t fully pay off in the most current billing cycle. But how does APR translate into the amount of interest you’ll actually pay?

Read on to learn more about, including an in-depth look at how you can find your daily periodic rate, simple versus compound interest, how to calculate your average daily balance, and more. Or skip ahead to learn how your APR is calculated or to compare the best balance transfer offers to avoid paying interest.

## Step 1: Divide APR by 360 (or 365) to Find Out Your Daily Periodic Rate

Before we can explain the first step, we should clarify a few important terms:

Grace Period: The normal billing cycle for a credit card can range from 28 to 31 days. The due date for your monthly payment is no less than 21 days after the end of the billing cycle. Each billing cycle provides a grace period, which means you don’t incur interest on purchases made within the billing cycle if you pay them in full by the due date. Your outstanding balance is the accumulated amount you haven’t paid within a grace period.

Simple Versus Compound Interest: Simple interest is the amount you pay on your outstanding balance without including the effect of compounding. Virtually all cards figure your interest with compounding, which means they add the interest you already owe to the amount subject to interest – you are paying interest on interest.

In the good old days, credit cards used monthly compounding, but the current fashion is daily or continuous compounding, which will cost you more. As an example of daily compounding, if your outstanding balance is \$1,000 and the day’s interest is 71 cents, then tomorrow’s outstanding balance will be \$1,000.71 (assuming no other purchases or payments).

Nominal Versus Effective APR: When you see an ad for a credit card, the interest rate is expressed as the nominal APR, which is based on simple interest and excludes fees. The more appropriate number is the effective APR, which includes the effects of compounding and any fees that are not paid separately. Some cards charge the annual fee (if any) as a lump sum, but others spread the annual fee over the entire year, making it part of the effective APR.

If possible, obtain the effective APR of any credit card you are considering. Fees for late payments or for exceeding your credit limit are not included in any APR, since they are charged separately.

To illustrate the three-step process for calculating your interest charges, imagine that you have an outstanding balance of \$3,500 on a credit card with an interest rate of 25 percent.

In this example, the credit card uses a 360-day year (some cards use 365, terms will vary), so the daily percentage rate, or DPR, is equal to 25% / 360, or .06944%. This is the interest rate you pay each day on the balance subject to interest. Assuming daily compounding and no other activity, your daily balance would grow each day by the interest charged on the previous day.

## Step 2: Calculate Your Average Daily Balance

The average daily balance is computed by adding together each day’s outstanding balance and dividing by the number of days in the billing period. For simplicity’s sake, we set the average daily balance to \$3,500.

## Step 3: (Avg. Daily Balance x DPR) x Days in the Month

Finally, we calculate the interest charged for the billing cycle, which in this example, is \$3,500 x .06944% x 30 days, or \$72.91. This is the amount of interest you would be charged on a card with a \$3,500 balance and a 25% interest rate.

## How Banks Determine Your APR

The APR on your credit card is based on the bank’s opinion of your creditworthiness, which is in large part derived from your credit score. Most banks use FICO credit scores, which range from 300 (the worst) to 850 (the best).

Each of the three major credit bureaus, Equifax, Experian, and TransUnion figure their FICO scores a little differently, but the scores tend to cluster closely. Interpretations differ, but generally, 700 is considered the dividing line between good and fair scores. The lower the score, the higher APR you’ll pay. If your score is too low, you could have difficulty qualifying for any credit at all.

Sometimes, banks will take into account other factors when determining your APR, such as black marks on your credit history (bankruptcies, court decisions, garnished wages, etc.). You will save money on interest if you can raise your FICO score – check out the myFICO website for tips on how to do that.

## Delay Interest Payments with a Balance Transfer Offer

Many credit cards offer special balance transfer deals that can save you money. In a balance transfer, you move your outstanding balance from one credit card to another. To entice new customers, the balance transfer offers usually include a set number of months during which you don’t owe any interest on the transferred amount.

Some of the best balance transfer offers grant interest-free periods of 15 or even 21 months. In addition, some cards will also grant a multi-month grace period on new purchases made after you transfer a balance. If you combine that with a zero-percent annual fee and a reasonably low APR, you have the makings of a great credit card. Here are some of our favorites:

You may have seen the term APR, or annual percentage rate, used in reference to everything from mortgages and auto loans to credit cards. In this piece, we look at credit card APRs—which you’ve probably seen listed on your monthly statements. Knowing what an APR is, how it’s calculated and how it’s applied can help you make more informed credit card decisions.

## Understanding APR

APR is an annualized representation of your interest rate. When deciding between credit cards, APR can help you compare how expensive a transaction will be on each one. It’s helpful to consider two main things about how APR works: how it’s applied and how it’s calculated.

## How does APR work

Generally, credit card companies offer a grace period for new purchases. If you only make purchases and pay off your ending balance each month by the due date, you pay just the amount you owe with no interest. However, if you opt to carry a balance on your card, you pay the agreed-upon interest on your outstanding balance.

## How to calculate APR

Many variable interest rates start by using an index, such as the U.S. Prime Rate, and then add a margin. The result is the APR. Variable rates can change if the index changes, and some banks offer a non-variable APR as well. Here’s an example of how the rate is set:

The U.S. Prime Rate, as published in the Wall Street Journal

The margin the bank charges

Annual percentage rate

## Figuring out what you owe

Banks use a formula to determine how much interest you pay on your outstanding balance. They calculate it using a daily or monthly periodic rate, depending on the card.

Keep in mind some accounts have multiple APRs, so this calculation may be applied for each one. The statement gives you more information about how to calculate the balance subject to interest rate.

Annual percentage rate

Daily periodic rate

DPR multiplied by days in billing period

Balance subject to interest rate

## Types of APR

There are different APRs based on how you use your credit card. When you’re selecting a credit card, it’s a good idea to consider these rates in addition to your credit needs.

### Purchase APR

The rate applied to credit card purchases.

The cost of borrowing cash from your credit card tends to be higher. There may be a different APR for checks or certain types of cash advances.
No grace periods.

### Penalty APR

Usually the highest APR. It may also be applied to certain balances when you violate the card terms and conditions like failing to make payments on time.

### Introductory APR

(or promotional APR) Features a lower APR for limited time period. It can apply to specific transactions as well as balance transfers, cash advances or any combination.

## APR and the cardholder

Before you get any credit card, keep in mind:

• Generally, lenders cannot change the APR for the first 12 months. However, an APR can change in that period if it’s a promotional or variable rate or if the terms and conditions are violated.
• Consumers should review terms and conditions, including the APR, before using their cards.
• In most circumstances, when changing terms and conditions, companies must give 45 days advance notice.

Remember, while APR is important, it’s just one of the factors to take into account when choosing a credit card that’s right for you.

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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## How To Use Credit Card Interest Calculator

If you don’t pay off your credit card balance each month, you’re paying more than you should in interest. But how much? Enter your credit card balance, your interest rate, and an average monthly payment OR a time period to see how much interest you’d actually pay based on your monthly payment or in a specific period of time.

## Credit Card Interest Calculator

When used responsibly credit cards can be incredibly valuable tools. If you’re only paying your minimum monthly balance though, interest charges can quickly get out of control.

This can especially be true if you have a rewards credit card. It’s easy to overlook interest charges when you’re racking up miles, points, or cash back each month; however, if you aren’t heavily paying down your balance, interest charges can quickly offset any rewards you might earn.

The most obvious way to avoid paying interest charges is to pay off your credit card bill in full each month, but we get that this isn’t always a realistic option. Even paying more than the minimum balance due can be difficult sometimes.

If you are able though, do your best to pay your statement in full each month, or at least pay off as much of your balance as you can. And to be proactive, it’s best to not charge more to your card each month than you know you can afford to pay off when your statement rolls around. But again, we get this isn’t always feasible, and sometimes, things happen.

One motivating factor to pay your balance off is to actually see how much extra you’re paying each month in interest charges. The CardRatings credit card interest calculator is an easy way to do this.

## How to calculate credit card interest?

There are only three bits of information that are necessary to see how much interest you’d pay based on your monthly payment, or in a specific period of time:

Step 1: Enter your current balance on your credit card. Find the total amount of your current balance on your credit card statement and enter that amount in the first field. Do not include a dollar sign or commas in your entry.

Step 2: Enter the current interest rate charged by your credit card. Your interest rate may be expressed on your statement as APR, or annual percentage rate. This may have changed since you first signed up for the card, so check your latest statement for the current rate. Enter the percentage interest rate without adding a percent sign.

Step 3: Enter your average monthly payment amount, in dollars, with no commas or dollar sign; or, to see how much interest you’d accrue over a specific time period, enter this number in months in the last field. For example, if you want to see how much interest you’d be charged over a two year period, enter “24” for 24 months. Note: If you leave your average monthly payment blank, the calculator will use the selected period of time in this calculation.

Now click on the “Calculate” button and in the dark blue bar just below you’ll see the amount you’ll pay in interest as you pay off your credit card balance.

## How to avoid interest charges on credit card?

As we mentioned above, the best way to avoid paying credit card interest is to avoid carrying a balance altogether, but again, we get this isn’t always possible.

If you can’t pay off your balance in full, do be sure to try and pay it down as much as you can, and if that’s still not feasible, consider transferring your balance to a balance transfer credit card with a 0% intro APR period to give yourself some more time.

The ® Double Cash Card – 18 month BT offer” data-creditNeeded=”Excellent” target=”_blank” rel=”nofollow”>Citi ® Double Cash Card – 18 month BT offer , for example, offers 0% intro APR on balance transfers for 18 months. Eighteen months is a solid period of time to pay down a balance while saving yourself some money on interest charges. Just be aware though that once the intro period expires, standard 13.99% – 23.99% (Variable) APR applies, so it’s important to pay off your balance in full within the intro time frame to avoid paying any interest once it expires. Citi is a CardRatings advertiser.

This card also earns up to 2% cash back – unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, just pay at least the minimum due on time.

Keep in mind though that these new purchases will accrue interest if you’re not paying them off in full each month, so if your primary purpose is to avoid paying interest fees, and you can’t pay off your balance in full each month, it might be best to just use this card for its intro 0% balance transfer APR offer until you can get your finances under control.

It’s also important to note that there is a balance transfer fee of either \$5 or 3% of the amount of each transfer, whichever is great. This is to be expected with balance transfer credit cards though.

If you’re worried about running up new interest charges with your purchases, Citi also offers another option which might make more sense for you: the ® Diamond Preferred ® Card” data-creditNeeded=”Excellent” target=”_blank” rel=”nofollow”>Citi ® Diamond Preferred ® Card .

With this card you can enjoy 0% intro APR on balance transfers for 18 months from the date of first transfer, as well as 0% intro APR on new purchases for 18 months from the date of account opening. After the promotional periods expire, regular 14.74% – 24.74% Variable APR will apply.

There is a balance transfer fee of 3% of each balance transfer; \$5 minimum , but this is average, and again, is to be expected with balance transfer credit cards.

Be sure to explore all of our balance transfer credit cards for more options.

When figuring out how to minimize the amount of interest you’re paying, just remember, the minimum payment on your credit card statement is designed to meet the credit card company’s goal of maximizing the amount of interest they earn. By using this calculator and visualizing how much money you can save, you’re one step closer to meeting your goal of getting out from under the shadow of credit card debt.

How we calculate savings: Our algorithm factors in the introductory balance transfer rate, length of the introductory period, balance transfer fee, ongoing interest rate, annual fee and data entered into the filter in order calculate savings and the time needed to pay off a balance. The algorithm is designed to yield reasonably accurate results.

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General Disclaimer: *See the online credit card applications for details about terms and conditions of credit card offers. Reasonable efforts are made to maintain accurate information. However all credit card information is presented without warranty. When you click on the “Apply Now” button you can review the credit card terms and conditions on the credit card issuer’s web site. Offers are subject to change without notice and the terms displayed may not be available to all consumers.

## Replies

the formula is if M = monthly rate then

multiplying by 13 gives an approximate answer

Just to clarify the formula by CLAPTON, M = Monthly Rate (%) / 100.

The % APR will be 100 times the result given by the formula.

So at 2.2071% per month,

APR/100 = 1.022071^12 – 1 = 0.29947. to give an APR of 29.95% to 2 decimal places.

Just to clarify the formula by CLAPTON, M = Monthly Rate (%) / 100.

The % APR will be 100 times the result given by the formula.

So at 2.2071% per month,

APR/100 = 1.022071^12 – 1 = 0.29947. to give an APR of 29.95% to 2 decimal places.

thank you but it all depends upon the what you mean by the values

so, in fact,
2.2071% means 0.22071
so if you divide by 100 you get 0.002071 which doesn’t give the right answer

but I’m sure we agree really

yes indeed (doubtless why they prefer to highlight the monthly figure)

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## Where can I find the APR used to calculate interest on my credit card account?

The Annual Percentage Rate (APR) for your credit card account is on your credit card statement. To access your statement, click “Online Statements” from the “Accounts” tab in Regions Online Banking.

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The are two primary ways with which to calculate the Annual Percentage Rate, or APR, for credit cards. The daily periodic rate and the monthly periodic rate are similar but also different enough that larger balances could lead to increased costs or costs savings depending on which one is used. Understanding the basics could make a difference when negotiating terms with a credit card issuer.

It is easy to determine which rate is currently used. One the reverse side of your current statement are a list of terms which apply to your credit card. This list specifies various attributes like the grace period and certain fees. It will also list the current Annual Percentage Rate and well as whether or not it is a daily or monthly calculation. Once you have this information you can calculate what your interest expense is and verify if it matches what is on the front of the credit card statement.

The monthly periodic interest rate is as easy as it sounds. Take the APR that appears of the statement and divide it by 12. So if the APR is 12% then the monthly periodic rate will be 1% every month. You can then calculate the monthly finance charge by multiplying the outstanding balance of \$1,000 by .01 (10% by moving the decimal point two place to the left) which will return and monthly finance charge of \$10.

The daily periodic interest rate is a little more complicated to calculate but it is similar in nature. Take that same APR of 12% but now divide it by 365, the number of days in a year, which will return .03% per day. You can calculate the finance charges for the month by multiplying the daily interest rate times the number of days in the billing cycle times the balance. For example, take .03 times 31 which returns 1.02% times the \$1000 balance. As you can see, the finance charge is slightly higher at \$10.20.

Understanding how the Annual Percentage Rate is calculated is important to ultimately making wise financial decisions. It may not seem like a lot of money when talking about smaller balances but it really starts to add up when balances get significantly larger. Credit card companies hope consumers don’t know how their accounts work but with some basic information you can take control back and use the credit that is best for you.

## Credit card calculation results.

Use these credit card repayment calculators to work out effective strategies to pay off your credit card debt. Calculate how long it will take to pay off your credit card balance. Alternatively, use the second calculator to work out how much you should pay each month to eliminate your credit card balance completely in a set period of time.

Disclaimer: Whilst every effort has been made in building these credit card repayment calculators, we are not to be held liable for any special, incidental, indirect or consequential damages or monetary losses of any kind arising out of or in connection with the use of them. Full disclaimer. These tools are here purely as a service to you, please use them at your own risk.

## How long will it take me to pay off my credit card bill?

It is important to be aware of the interest rate that you’re paying on your credit card bill and the monthly interest charge for the credit you’re receiving. If your monthly repayments are too little, your bill may actually be rising month-on-month in interest alone. Read all about why your credit payment plan may never clear your debts.

To work out exactly how much time it will take to pay off your credit card bill, use our calculator above.

### How much should I pay off my credit card bill each month?

Paying the absolute minimum on your credit card bill is great for your credit card company but bad for you.

Many credit cards charge a very large rate of interest on the money that you borrow and most state that you only need to make a minimum payment each month (often about 2%). Whilst this sounds really tempting, it can actually prove very costly in the long run. That is why many financial advisors advise not to borrow money on a credit card if you can possibly avoid it.

So, the simple answer to the question about how much you should pay off is as much as you can. Even paying off a small amount above the minimum required will help reduce the compounded interest in the months to come. To work out the minimum monthly payment required to pay off your credit card bill in a particular timescale, use our calculator at the top of this page.

If you would like some tips on improving your credit rating, including thoughts on what to do with your credit cards, see our simple guide to boosting your credit score.

### Should I borrow on a credit card?

Whilst there are often some very good deals out there on credit card interest rates (including some that allow you 0% interest for a set period of time), you should always check the small print on each offer to find out how long the deal lasts.

As an example, a 0% interest deal may last for 6 months, at which point the interest rate might rise to 15%. Get caught up in that and you’ll suddenly find yourself paying high interest on your credit loan at the end of the first 6 months.

Most financial advisors would agree that although credit cards are convenient, they are often a very expensive way of borrowing money and should be avoided if possible. Borrowing money long term on a credit card does not make good financial sense. If you already have a large credit card bill, shop around and see if you can move the balance across to a credit card with a lower rate. It’s well worth the effort.

### What Is APR?

APR stands for Annual Percentage Rate and is the borrowing interest rate for your loan or credit card debt. The APR calculation takes into account for the interest rate, how often it’s charged, initial fees and any other costs associated with the loan. Credit cards tend to have high APR percentages, commonly between 15 and 40 percent, so it’s worth spending extra time hunting around for a good rate.

To understand how much you’re going to pay in interest, you will need to understand how your card’s annual percentage rate (APR) works.

Below, you can find out how to calculate APR on a Credit Card.

## What is APR?

APR is defined as the yearly interest rate charged on a credit card.

The APR on your credit card is the annual rate at which your card issuer will charge you interest whenever you carry a balance. The higher a credit card’s APR, the more interest you’ll pay.

If you always pay your bill in full and you never carry a balance, then APR and interest charges won’t affect you.

Check out some of the best Credit Card Bonuses!

### Variable vs Fixed

There are two main types of APR that a credit card issuer might use. Some cards will have a variable APR and others will have a fixed-rate APR.

Variable rate credit cards have an interest rate that is tied to an index such as the U.S. prime rate. When the U.S. prime rate changes, the interest rate on those credit cards will change as well. A credit card with a variable APR may change monthly, quarterly or yearly.

The interest rates with a fixed-rate APR will not change with any index. Those rates can still change but your card issuer is required by law to give you plenty of notice before any change.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 requires credit card issuers to give 45-day advance notice of any interest rate increases.

## How to Calculate APR?

There are several steps to follows when calculating APR:

1. Calculate Your Daily Periodic Rate
• To calculate your credit card’s DPR, you need to divide your credit card’s APR by 365
• Issuers use this number to represent the number of days in a year
• Some issuers will use 360 instead of 365. You will need to check with your individual card to make sure you’re using the correct number
2. Calculate Your Average Daily Balance
• To calculate this average you need to write down the balance that you owed at the end of each day of the billing cycle and then average all those numbers
• Multiply that DPR by your average daily balance and by the number of days in the month

## Author’s Verdict

Knowing how to calculate how much your credit card issuer will calculate interest charges on your credit card is important when understanding your finances.

Hopefully the above information helps you understand how to calculate APR on a Credit Card.

Also be sure to check out our own lists of bank promotions and CD tables!

### 6 Tips to Save Using the Most Popular Food Delivery Apps

Some people are so swamped in credit card debt that they are afraid to even look at their bills, let alone analyze their credit card percentages. But the only way out of debt is to gain an understanding of what you are being charged and when so that you can take the appropriate actions to pay down the debt aggressively. Here are some guiding points for determining your key credit card percentages and rates.

Look at your credit card statement online or in your bill. There should be a section that discusses your interest rates. You may have more than one interest rate listed depending on the categorization of your balances. One interest rate may be for purchases, another for balance transfers, and yet another for ATM withdrawals you made from your credit card. Work with one interest rate at a time when calculating your credit card percentages.

Calculate your average monthly interest rate by dividing the credit card interest rate percentage by 12.

Calculate your daily interest rate by dividing your yearly (annual) interest rate by 365. For example, if your credit card interest rate is 12.99 percent per year, your daily rate is .0356 percent.

Calculate your APR (annual percentage rate) for each billing period by adding in all of the finance charges you paid that month, including interest on all balances, balance transfer fees and other transaction fees. Divide that dollar amount by the number of days in your billing cycle. Then multiply the resulting figure by 365 (days in the year). Divide that resulting figure by your principal balance for that billing cycle (total up all the balances listed in your “Finance Charge Schedule” to determine that amount). Convert the ending decimal figure into a percentage rate by multiplying it by 100. This is the annual percentage rate you are paying in that particular billing cycle.

Use your daily interest rate to calculate how much money you are spending each month on interest by multiplying the daily interest rate by your current credit card principal balance, and then multiplying that dollar amount by the number of days in the billing month. Stay on top of your credit card company to make sure that your credit card percentages are the same as they were the previous month. If the credit card company raises your rates, you have the right to reject the rate change. The only down side is that you will probably not be able to continue to use the credit card for new charges.

Louise Balle has been writing Web articles since 2004, covering everything from business promotion to topics on beauty. Her work can be found on various websites. She has a small-business background and experience as a layout and graphics designer for Web and book projects.

• Your interest rate is the amount your credit card charges you to borrow money.
• If you pay your credit card balance in full and on time, you generally don’t need to worry much about your interest rate, which is expressed as an annual percentage rate (APR).
• However, if you’re carrying an unpaid balance on your credit card, you’re paying a little interest every day, which you’ll see on your monthly bill.
• While you’ll want to check with your bank before running your own calculations, many credit card issuers use the average daily balance method of calculating interest.
• Visit Business Insider’s homepage for more stories.

When it comes to credit cards, understanding your interest rate and how it works can be the difference between staying out of debt with an excellent credit score and falling behind in your payments and dipping to sub-par credit score ratings.

Your interest rate is the amount your credit card charges you to borrow money. If you pay your credit card balance in full and on time, you generally don’t need to worry much about your interest rate, which is expressed as an annual percentage rate (APR).

But if you’re carrying a balance on your credit card, you’ll notice you owe more over time, and that’s because of the interest rate. Credit cards are notorious for being one of the most expensive types of consumer debt, with an average interest rate of about 17%.

While in most cases you probably don’t need to calculate your credit card card interest rate — your statements should clearly reflect how much interest is owed on any unpaid balance and your APR should be clear on your statement and your bank’s website — you may want to get an idea of how much your balance is costing you on a day-to-day basis.

Here’s a quick cheat sheet to help you when it comes to calculating your own credit card interest rate.

## How to calculate credit card interest

### 1. Pull up your credit card information

Log on to your financial institution’s website or pull out your latest statement (if you haven’t switched to paperless billing yet, get on that!) to find the pertinent information you’ll need to calculate your credit card interest.

You’ll need to find:

• the number of days in your billing cycle

### 2. Get to know the terms

The way your credit card works boils down to a few different terms, two of which include annual percentage rate (APR) and, more generally, your interest rate.

Although APR stands for annual percentage rate, your credit card company uses this percentage number to determine the interest you’ll be charged each month when you don’t pay your credit card off in full and carry a balance.

Keep in mind that your credit card may have different types of APR, like a:

• purchase APR (usually applied to the overall purchases you make with a card),
• balance transfer APR (usually applied to any balances transferred from another credit card)
• introductory APR (usually applied to purchases made during the promotional period after opening a new credit card)

### 3. Find your purchase APR

In order to calculate the interest you owe on any leftover balances on your credit card, you’ll need to find your purchase APR. If you can’t find this information readily, try calling your bank, or click on your card’s terms and conditions section.

### 4. Determine your average daily balance (or balance subject to interest)

This is the aggregate total of what you spent and either paid off and/or were refunded every day throughout your billing cycle, divided by the number of days in your billing cycle.

If you’ve always paid your purchases in full by the due date, you won’t have any interest payments to make and your average daily balance isn’t really a factor. However, if you plan to carry a balance, to calculate your average daily balance when you need to determine interest, log onto your bank account online and track the charges and credits that went through on each individual day, creating a rolling total as you move through the days of your billing cycle.

This will provide you with an aggregate total that you can then divide by the number of days in your billing cycle (which you’ll find in step five).

### 5. Get the number of days in your billing cycle

Different credit cards have different amounts of time between billing cycles. A typical credit card statement is paid out in 30-day billing cycles.

### 6. Divide your APR by 365

Since your APR is your annual interest rate, you’ll need to divide your APR by the number of days in the year to get your daily interest rate. So for example, an APR of 13.99% would become: 0.1399/365 = .00038 daily interest.

Once you know what you’re charged daily for interest, you can multiply that number by your average daily balance to find the daily interest you’ll owe. So for example, if your leftover balance after paying your credit card is \$1,000, you would get: .00038 x \$1,000 = \$0.38

### 8. Multiply your daily interest rate by the number of days in your billing cycle

If you determined that you have a 30-day billing cycle, then the credit card interest you would owe on a balance for the 30-day cycle in this example would be: \$0.38 x 30 days = \$11.50 in interest

Some credit cards offer a grace period between when items are purchased and when they absolutely need to be paid off before accruing interest. Check in with your bank to learn if you have a grace period on your accounts and what the exact grace period is in order to better avoid paying interest.

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## How to Calculate APR on a Credit Card

For all you credit card holders and future credit card holders, you might be wondering if there is a cost to carrying a credit card balance. To figure out how much you’re going to pay in interest, you need to know how your card’s annual percentage rate (APR) works.

The APR is basically the yearly interest rate charged on a credit card. The higher the APR, the more interest you will have to pay whenever you carry a balance on your card. Below, we will go over in depth what that means and ways to calculate it.

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### What Is APR?

Before trying to figure out how to calculate your credit card interest is, we’ll look into what APR is. Basically, the APR on your credit card is the annual rate that your card issuer will charge you whenever you carry a balance. The higher a credit card’s APR, the more interest you’ll pay. If you always pay your bill in full and you never carry a balance, then APR and interest charges won’t affect you.

There are two main types of APR that a credit card issuer might use. Some cards will have a variable APR and others will have a fixed-rate APR. Variable rate credit cards have an interest rate that follows another index, such as the U.S. prime rate. So when the U.S. prime rate changes, the interest rate on those credit cards will also change. Keep in mind thought that credit cards with a variable APR may change monthly, quarterly or yearly.

### Calculate Your Daily Periodic Rate

Your credit card issuer will use your card’s APR to determine how much you pay in interest. First, it converts that annual rate into a daily rate. This is the daily periodic rate (DPR).

To calculate your credit card’s DPR, you need to divide your credit card’s APR by 365. Issuers use this number to represent the number of days in a year. There are a couple of things to note here. Some issuers will use 360 instead of 365. You will need to check with your individual card to make sure you’re using the correct number. Purchases, balance transfers and cash advances also have different APRs for cards. Make sure that you are using the correct APR when for your calculations.

Once you have divided the APR, you are left with the DPR. Using this number, multiply it by the amount that you owe and you will be left with amount of interest that you owe after each day. The daily amounts are added up into one lump sum at the end of your billing cycle (i.e. the end of the month). That sum is your interest charge for the month. However, there is one more number to consider: your average daily balance.

### Calculate Your Average Daily Balance

One big challenge with calculating credit card interest is that your credit card balance can change over the course of a month. However, your balance does go down if you make a payment.

Interest on a credit card applies to your total balance but what happens when your balance changes? To handle that, your credit card issuer will use your average daily balance to calculate interest charges. This is the average of the daily balances that you owed over that month or billing cycle.

To calculate this average you need to write down the balance that you owed at the end of each day of the billing cycle and then average all those numbers. This is the number your card issuer will use to calculate interest.

Now that you know your DPR and your average daily balance, you can use this information to calculate how much you should owe in interest at the end of the month.

### Watch Out for Penalty APRs

If your payments are being made nearly 60 days late, then your credit card issuer may bump up your APR to a penalty APR. This could potentially be twice as high as your standard APR.

Also, you will need to keep that penalty APR for a certain amount of time before your credit card issuer will even consider lowering your APR back to normal. This could mean six months or more of on-time payments with the penalty rate.

That is why it is crucial that you are careful with your finances, including your credit card, to avoid triggering this higher interest rate. A good tip is to set up payment reminders so you don’t forget to make those minimum payments. If you need to, you could even change the due date of certain bills so that you’re sure you have time for your paycheck to hit to make those payments.

### Bottom Line

Before signing up for any form of credit, such as credit cards, it is important to figure out how your issuer will calculate interest charges. Different credit card issuers will use a different formula, but you will always be able to calculate your interest charges as long as you know your credit card’s annual percentage rate (APR). For more posts like this, check out our list of bank guides!

Smart borrowers and credit card users know how to calculate APR, which is the annual percentage rate on all debt-related products. .

## Learn How to Calculate APR

Although this rate is called “annual,” credit cards and loans in particular apply APR to balances in monthly installments. APR is a good point of comparison to look at when shopping for new credit cards, auto loans and mortgages. The rate is a key factor that differentiates one financial product from another, and is even pertinent to certificates of deposit, checking accounts and savings accounts.

APR seems deceptively simple at first, but it’s complex because an annual rate is divided into 12 and applied to outstanding balances. Yearly account fees are also added to the calculations, either divided into 12 or in one lump payment depending on what the credit-card company or lender specifies.

### Example

To figure out the monthly interest on a credit card with an APR of 7.5 percent, divide 7.5 percent by 12, which is 0.625 percent. The monthly interest is multiplied by the outstanding balance on the billing date, and then that amount is added to the balance to arrive at the total due for that month. If the cash portion of the balance on that 7.5 percent APR card were \$100, then the monthly interest payment would be 62.5 cents, and the total balance after interest has been charged would be \$100.625, which would likely be rounded off to \$100.63.

### Complexities

Calculating APR on credit card accounts can get confusing because interest is typically charged when balances aren’t paid in full. So with the example of the 7.5 percent APR card mentioned above, the 62.5 cents would be the monthly interest charged on \$100 if it were carried over from the previous month. Now if this month’s charges were a total of \$100, and you decided to pay half of it, next month you’d pay interest on the \$50 you carry over. That would add up to \$50.3125, which would likely be rounded off to \$50.31. That amount would be added to the latest month’s charges, only without any interest applied to the new interest charged. If the latest month’s charges are \$100, then the total due is \$150.31.

### Budgeting

This kind of numerical breakdown shows you how you can potentially save money by paying all credit card balances in full and on time. Knowing how to calculate APR has value in budgeting; if you can’t afford the interest rates that accumulate from carrying balances over the months, you’ll want to hold off on adding new charges to card accounts until you can pay off the balances. Similarly, knowing how to examine APR numbers may make you think twice about whether to work with a debt consolidator, a service that aggregates all of your credit card and borrowing balances into one account with one interest rate.

### Rate Increases

APR often starts out at a low rate for the first six months after a credit card account is opened, and then goes up to an extent based on the cardholder’s payment habits during the initial teaser period. The APR can go up if the accountholder accumulates more borrowing capacity by opening new accounts. The APR can also change if the cardholder’s credit score changes, which would happen if any accounts become delinquent or go to a collections agency.

### Know the Terms

Rather than let yourself be blindsided by rate increases after they happen, learn your credit card issuer’s policy for determining interest by reading the terms and conditions for every account you own. That goes for brand-new cards and ones you’ve had for years, because federal laws governing credit-card rate setting policies have changed in recent years and issuers have adjusted their terms and conditions as a result. Before you apply for any new card or loan, be sure to carefully read all the terms and conditions for that financial product.

## Summary

Just because you are not being charged interest for a specific time period doesn’t mean that you won’t have to make minimum payments on that balance.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

## How is the minimum payment determined on a 0 percent balance transfer card?

Minimum payments are assessed the same way on a 0 percent balance transfer card as on card charging interest.

Dear Opening Credits,
If you do a balance transfer for \$22,000 with no transfer fee and 0 percent interest, what would the monthly payment be? How is the monthly payment determined on a 0 percent balance transfer card ? – Nancy

Dear Nancy,
If you are lucky enough to find a balance transfer card with a credit line that size, with a lengthy 0-percent interest period, and with no fee, consider yourself blessed because they are rare. You will need very good credit, and you will need to keep your eyes open for such a deal. In today’s credit card market, such deals are rare, reserved for customers with good credit, and often temporary.

Subscribe to get the week’s most important news in your inbox every week.

Your credit cards journey is officially underway.

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First, minimum payments. According to CreditCards.com minimum payment survey, nearly all major card issuers charge 1 percent of the principal balance, plus monthly interest and any fees. Discover is the outlier; it charges 2 percent of the total balance.

With no interest being charged for several months, the typical minimum payment on a \$22,000 balance during the interest-free months following a balance transfer would start at \$220. It would drop slightly each month as you pay down the balance. Once the interest-free period ends, the minimum payment would jump, because interest charges would be added to the balance owed.

But this is what you should do, though: Send far more than the minimum payment. To get the most out of balance transfer deal, you want to pay off the entire debt within the introductory time frame before the card’s regular APR kicks in.

Most of these introductory 0 percent interest offers last between six months and one year, but a few issuers will extend the rate further.

To know how much you’ll have to send each month so you can avoid being charged an extra penny in interest, just divide the amount of the debt you’re transferring over by the number of months the promotional period lasts.

Here are some examples of what you’d need to send each month to pay off \$22,000 within a specific period (rounded up to the nearest dollar):

6 months = \$3,667
12 months = \$1,834
18 months = \$1,223

As you can see, the minimum payment the issuer would expect is far shy of even the lowest of these payments. While it’s nice to know what the minimum payment is and how it’s determined, the best strategy is to kick it up many notches.

And if you get stuck with a remaining balance after the 0 percent APR deal ends, you will start paying the real APR. Bear in mind that those regular APRs can be painfully high. According to the CreditCards.com December 2017 Balance Transfer Survey, the average post-introductory-period APR on balance transfer cards stood at 19.33 percent.

If you only have a few hundred dollars left over on the card, even the highest interest rate won’t result in costly finance fees, but in the event you still owe thousands, you’ll have a very expensive situation on your hands.

Let’s say you managed to eliminate all but \$5,000, and the APR is now 19.33 percent. According to our minimum payment calculator, the minimum payment (which declines as the balance does) would start out at around \$131. Stick to the minimum and it would take nearly 19 years to pay off, and cost more than \$7,000 in interest charges.

So much for that great deal. Your best bet, then, is to continue to send as much as possible.

Be careful with that old card, too. It’s fine to charge the occasional item with it, but send the entire payment due immediately. Otherwise you’ll just be spinning your financial wheels and never get ahead.

So when you ask how the payment on a balance transfer is determined, look in the mirror. You, not the formula set by a bank, should decide.

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” Her articles and insights are featured in such publications as The Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSN Money and Dow Jones MarketWatch. An active television and radio commentator, Sandberg is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Bloomberg TV and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops and led the media relations department. Sandberg is a member of the Society of American Business Editors and Writers and on the advisory committee for Project Money.

### What’s up next?

Charged Up! podcast: Financial lessons for millennials

Former trader and author Michael Taylor joins us to teach you the mathematical concepts you need to know to avoid debt and start building wealth now

## Get a full rundown of this key credit card essential.

The real cost of credit card debt may surprise cardholders who don’t understand how rapidly APR interest charges can pile up when carrying balances month-to-month. That’s why grasping the credit card APR is crucial to beating financial goals.

Below, we’ll demystify credit card APR and cover a few other credit card essentials, including:

• What APR means
• Understanding variable APR versus fixed APR
• The difference between APR and interest rate
• How to calculate credit card APR
• What is a 0% APR offer?
• How to pay off debt faster
• How to find a 0% intro APR credit card

Image source: Getty Images.

## What APR means

APR stands for annual percentage rate. A credit card APR is the price you pay to borrow money and it reflects those costs over one year. It’s important to note the actual interest costs are compounded daily, not yearly.

For example, borrowing \$1,000 at a 10% APR doesn’t mean you’d pay just \$100 in interest costs. Compounding interest works in the card issuer’s favor and will result in you paying more over the life of the loan as interest charges are charged on top of prior interest charges.

## Understanding variable APR versus fixed APR

Most credit card APRs are variable, meaning they move in tandem with broader economic interest rates. Variable APRs are determined by adding a pre-determined margin on top of a benchmark rate, such as the U.S. prime rate. As prime rates move up or down, card issuers update their card APRs on a monthly or quarterly basis.

A fixed APR doesn’t change with broader interest rates, which may work out in your favor with rising interest rates, but it’s rare for credit cards to offer a fixed APR.

## The difference between APR and interest rate

The interest rate and APR on a credit card are typically one in the same and both accurately reflect the one year cost of borrowing money.

APR and interest rate are different in the context of a mortgage. Interest rates are generally lower than APRs and are used by some clever marketers as teaser rates to attract new business. But APR is what homeowners should be focused on. APR accounts for the various all-in costs (think origination fees and discounts points) and reflects a mortgage owner’s actual payment each month.

## How to calculate APR and credit card interest charges

At first glance, the formula used to calculate credit card interest charges may appear complicated. But don’t go sprinting for the “back” button on your internet browser. You’ll soon fully grasp something many others overlook. That puts you in rare, financial savvy company today.

Broadly speaking, credit card interest is calculated by applying a daily rate to an average daily balance carried on a credit card. The following graphic outlines the full calculation in more detail.

How to calculate credit card APR interest charges.

Now that we have the lay of the land, let’s go under the hood and learn how to calculate credit card interest charges in three steps.

1. Convert the APR to a daily rate — Interest isn’t charged once per day, so APR is converted to a daily periodic rate, or DPR, by dividing the APR by either 360 or 365. For a 17% APR divided by 365, the DPR is 0.00465%.

2. Calculate the average daily balance — Calculating the average daily balance takes a few more steps as shown in the table below. Two payments are made throughout the month on an initial \$500 balance, one payment for \$250 and one payment for \$50. Accordingly, a \$500 balance was held for 10 days, \$250 balance for 10 days, and \$200 for another 10 days. Multiply each balance by the number of days it was carried throughout the month, then divide the total by the number of days, to arrive to an average daily balance of \$316.67.

Hypothetical average daily balance example.

3. Calculate the monthly interest charge — Now that we know the DPR and average daily balance, multiply those numbers together, and then by the number of days in the month (0.00465% x \$316.67 x 30) to bring us full circle to a monthly interest charge of \$4.42.

## What to know about credit card APR

We can glean a few important takeaways now that the you know how to calculate credit card interest charges.

First, payment timing affects interest charges. Payments made earlier in the billing cycle will result in lower interest charges, due to a lower average daily balance held throughout the month.

Second, interest can be avoided entirely by paying off balances before the due date. That can be explained by the fact a \$0 average daily balance is subject to interest after the due date.

## What is a 0% APR?

Credit cards can be powerful tools to help cardholders get out of debt or to defray the costs for large, new purchases. There are essentially two types of 0% intro APRs.

1. 0% intro APR on new purchases — Some credit cards will offer a 0% APR for new purchases. But know that this APR is a promotional rate and only applies during a specified period, which can range from a few months all the way up to 21 months for some credit cards. This is a valuable tool to help cardholders avoid interest charges on a large purchase that is paid for over time.

2. 0% intro APR on balance transfers — These cards are better known as balance-transfer credit cards, which can help indebted cardholders chip away at debt balances faster by transferring high-interest cost balances to a 0% intro APR credit card, where the promo period similarly can last up to 21 months.

## How to pay off credit card debt faster

Avoiding credit card debt can help people better reach their financial goals and getting out of credit card debt faster can help them to invest in their futures sooner. Transferring balances to a 0% intro APR balance-transfer credit card can secure cardholders some reprieve from interest charges during the promotional period. For example, paying down a \$5,000 balance over 18 months will cost \$703 in interest charges at an 18% APR and these charges can be avoided entirely with a balance-transfer credit card, when paying off the same balance over an 18-month promotional period.

## How to find a 0% intro APR credit card

Cardholders searching for a good 0% intro APR offer should first nail down their credit priorities. Taking advantage of a 0% intro APR for new purchases doesn’t make much financial sense when paying off debt faster is the primary goal. Figuring out which APR offer type fits your needs will better set you up for success.

Once figuring out your needs, review our picks of the best 0% intro APR credit cards and best balance-transfer credit cards. We’ve vetted some of the most popular offers on the market and selected a handful of credit cards that fit what we like to see in a 0% intro APR credit card, namely, no annual fee, flexibility, and transparency.

Jan 10, 2019 3:20 PM EST

People who take out loans generally understand that they are paying both the principal amount of the loan and the interest. What they might not fully understand is how much of their weekly, bi-weekly or monthly payments on the loan is interest.

If you have a particularly simple loan, figuring out the interest you will owe on it is, fittingly, simple. And if you have a calculator everything is easy as can be. But what if you’re not sure of the formula and you’re trying to figure out the interest on this loan? Not to mention the fact that as the amount owed on a loan changes, it only makes sense that the interest does. Plus, not every sort of loan operates in the same way.

Here’s what to know about figuring out the interest on your loan.

## Formula for Calculating Interest on a Loan

Many types of loans – including student loans, mortgages, car loans and business loans – go through a process called amortization. Amortization, in the context of repaying loans, is when the principal and interest are combined into a fixed amount to be paid at a consistent rate (often monthly) for a predetermined amount of time.

That means when you’re making a loan payment, when just looking at the amount you don’t know how much is the principal and how much is interest. But you can take it apart and figure it out.

First, you’ll need several figures handy before you can calculate the interest. Those are:

• The amount owed on the loan
• The interest rate
• The amount of time you’re paying the loan
• The monthly payment

So let’s say you have a business loan of \$30,000 over 10 years with a 6% interest rate. According to the provider of this loan, you’ll be paying \$333 dollars monthly on this loan. How much of that is interest?

Because the interest rate on this loan is 6%, and you’re making payments on a monthly basis, let’s use this formula to calculate interest:

(Interest rate/12) x loan amount = interest amount

We’re using 12 because we’re dividing the yearly rate by the amount of times you’re making a payment in the year, which in this case is monthly. If you were paying weekly or bi-weekly, it would be different.

So first we divide 6%, aka 0.06, by 12, which equals 0.005. 0.005 multiplied by \$30,000 = 150.

\$150 of that first \$333 loan payment is interest, meaning that you’ve paid \$183 of the principal.

### How to Calculate Interest With an Amortization Table

You may have noticed that all of that was to calculate only the interest on the initial payment. Now that you’ve paid \$183 of the loan amount, the new amount you have left is \$29,817. Which means we now have to do the entire calculation again to see how much interest is being paid in the second payment. And the third payment, and the fourth and so on until the loan is paid.

To keep track of how much of a loan payment is interest and principal, and how much of the loan is left, some may be inclined to use an amortization table. Also known as an amortization schedule, this table breaks apart the specific elements of your loan so you can see the full breakdown of what you’re paying, where that payment is going and how much you have left.

If we continue with this business loan example, using an amortization table the breakdown would start off approximately like this:

And so on and so forth through the full 10 years. By the end of those 120 payments, you will have paid an estimated \$9,967 in interest on this \$30,000 loan.

## How to Calculate Simple Interest on a Loan

This can all be a little complicated and unwieldy. If you have a loan with simple interest, luckily everything is far easier to manage.

Simple interest is best used with short-term loans. Calculating the aforementioned 10-year business loan or an even longer loan with simple interest isn’t going to give you an accurate result. With a bank loan that lasts one year, a simple interest calculation may be best.

The formula for finding simple interest on a loan is:

Principal x Interest rate x Time amount = Simple interest

So if we stick with a one-year bank loan as an example, let’s add onto that. Say this loan is worth \$150 with 5% interest. Plug everything in: \$150 x .05 x 1. The answer to this is that you’ll be paying \$7.50 in interest on this loan.

Simple interest calculations can be limited in the loans they work for, but in a case like this it’s very helpful and lets you avoid the continuing calculations over time.

## How to Calculate Interest on Credit Cards

Calculating the interest on your credit card can be a little trickier. You don’t have a set, unchanging credit card balance since you can add to it, and you’ll need to find out how much interest gets added every day of the year.

An important thing to know is that most credit cards don’t charge interest monthly, but daily. So just knowing your annual percentage rate (APR) is not enough; you’ll need to know the daily percentage rate as well. Let’s say you have a balance of \$700 on your credit card with an APR of 14%. If you don’t add anything to the balance or pay any of it off before the end of the month, you’ll average \$700 over 30 days.

We’ll have to figure out the daily percentage rate by dividing 14%, or 0.14, by 365. That gives us 0.00038356, or 0.038356%. If we multiply \$700 by the daily percentage rate, we end up with 0.268. Multiply this by 30, and you can estimate that you would pay approximately \$8.04 in interest that month.

If you never add to that balance, it will continue to average the same amount. But what happens if the balance changes? Say 20 days into this month, you charge an additional \$200 to the card, bringing you up to \$900. Now you’ll have to calculate the average balance you had that month on a daily basis.

For 20 days, it was \$700, and for the final 10 days of the month it was \$900. (\$700 x 20) + (\$900 x 10) = \$23,000. \$23,000 / 30 = \$766.67 as your average daily balance that month. In this case, you’d multiply \$766.67 by 0.038356% and get 0.294, and when you multiply that by 30 you end up with an estimated \$8.82 per month in interest.

These are estimates, but if your interest compounds you may end up paying more interest than the APR.