How Do You Calculate Credit Card Interest?

how do you calculate interest on credit cards

It is surprising to know that millions of people uses credit cards on a daily basis but majority of them don’t know how credit card interest is calculated. As a result many people end up paying a large amount of credit card interest rate fees. Now you can either blame it on the consumers for their careless spending or on the credit card industries for not explaining and educating their customers. Here we will discuss things you should know about calculating the credit card interest rates and charges.

There are about 14 different ways credit card interest rates are calculated by the issuers. Banks and credit card companies can charge interest based on several complex systems that is more than often confusing for even for people who have taken math at college level course. But we do know than companies usually tend to charge interest on daily basis and higher rates on higher negative unpaid balances.

APR is probably the most popular word you will see on every single credit card offer you get sent in your mail. APR stands for Annual Percentage Rate, which is the interest rate that you get charged. But don’t get fooled by those 0% APR credit card offers. There is more to the story than these best ever interest rate they claim to offer you. New consumers often only notice the catches once the issuer company starts sending the bill with interest rates they never expected. It could have been avoided if they read those tiny prints way underneath those large fine prints.

It is important to note that contrary to the popular belief, credit card company charges interest rates only after certain number of days from the billing due date. It is called grace period and can vary from few days to a month long. So those people who usually don’t pay their credit

card balance bill in full beyond their grace period are the ones who should be concerned about learning how to calculate their credit care interest rates. Some of the most common and popular methods of calculating the interest on credit card include, but not limited to, Average daily balance, Previous and Ending balance and Adjusted total balance.

Average daily balance way of calculating is the most popular one being used. In this method, balance on every single day of the billing period is added together and divide that amount with the total number of days there were during that period. In the Adjusted balance method, payments made during the current period are subtracted from the ending balance due from the last period. Purchases made during the period are not included in the computation.

| Published on July 2nd, 2009 at 12:57 am | Article of: Money | Resource for: credit cards |

Feel free to leave suggestions, ask any questions for help or simply talk about things discussed here.

2 Responses to “How Do You Calculate Credit Card Interest?”

joe the banker on July 2, 2009.

Well you are half correct for average daily balance is the most common practice of calculating the credit card interest rates. Don’t forget the prime rate also, the rate that tries to match up with the ones banks has to offer. Often the interest rates offered at end are always higher.

Tenzin Zhivago on July 20, 2009.

Federal government launched a tool few months back called a Credit Card Repayment calculator. It tells the consumer exactly how long it will take him or her to repay all your credit card balances. All you need is your total balance along with the maximum APR number your credit card bank or company charges you.

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