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How Credit Card Interest is Calculated

Author Calculate Credit Card    CategoryCredit Cards     Tags

There is no simple way to calculate interest on credit cards. There are different values that come into play:

  • Outstanding balance from the month before
  • Annual Percentage Rate of your credit card
  • Number of days in a month your credit card is calculated over
  • Number of days in a year your credit card is calculated over
  • Your Monthly Payment amount

For the calculations below, I’m just going to take a snapshot in time, so that it doesn’t take into account your monthly payments and compound interest. Essentially, I’m trying to give you a simpler view so that it’ll be easier to digest how much money you will be burning on interest on a daily, monthly, and annual basis.

The below examples will use the following values:

  • Annual Percentage Rate = 10%
  • Outstanding Balance = $5000
  • Days per Month = 30
  • Days per Year = 365

Formula to calculate daily credit card interest accrued:

  • ((Annual Percentage Rate/100)/Days per Year) * Outstanding Balance = Daily Interest
  • Example: ((10/100)/365) * 5000 = $1.37

Formula to calculate monthly credit card interest accrued:

  • ((Annual Percentage Rate/100)/Days per Year) * Outstanding Balance * Days per Month= Monthly Interest
  • Example: ((10/100)/365) * 5000 * 30 = $41.10

Formula to calculate annual credit card interest accrued:

  • Outstanding Balance * (Annual Percentage Rate/100) = Annual Interest
  • Example: 5000 * (10/100) = $500.00

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