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