Understanding Credit Card Interest Calculation
- Days in Your Billing Cycle: Check your monthly statement to determine the number of days in your most recent billing period.
- Annual Percentage Rate (APR): This is your account’s interest rate, found in your original cardholder agreement or on your most recent billing statement.
- Daily Periodic Rate: This is your account’s effective daily interest rate. To calculate it, divide your APR (in decimal form) by 365.
- Your Average Daily Balance: List the balance at the end of each day in the billing cycle, add them up, and divide by the number of days in the cycle. If interest compounds, calculate daily interest using your periodic rate and include the accrued interest for each day.
Calculating the Interest Amount
Once you have all these details, follow these steps to calculate your credit card interest:
- Multiply the average daily balance by your daily periodic rate.
- Multiply that figure by the number of days in your billing period.
By understanding how credit card interest is calculated, you can make more informed financial decisions and better manage your credit card usage.