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How are my credit card interest rates determined?

2 minutes minutes read

Have you ever seen your credit card interest rate and wondered how your bank knows how much to charge you? Keep reading to find out how you can calculate your own credit card interest rate.

What is the credit card interest rate?

This is usually expressed as an Annual Percentage Rate (APR).  and it shows you basically how much you need to pay when you have a balance on your credit card. Typically you can see your interest rate in the terms and conditions of your card, or you can always call the number on the back of your card.

How is the interest rate on credit cards determined?

Put on your glasses and take out your pen and paper. This is how you can calculate the interest rate on your credit card:

  1. First, you need to know that the APR is variable. This means that the interest might change as time goes by.
  2. Convert your annual rate to daily rate:

Here, you have to divide APR/365

  • Example with 10% APR: 10/365 = 0.0274%).

Then, you have to multiply by your current balance

  • Example with a $100 balance: [100 x 0.000274] +100 = $100.0274

3. Determine your average daily balance: This is based on your balance for each day of the month. Here comes the example:

Days 1-6: $0 balance

Days 7-11: $5 balance

Days 12-30: $7 balance

Then: (($0x6days)+($5x5days)+($7x19days))/30days

Average Daily Balance= $5.26

4. Calculate your interest charges: Now you have to put everything together and do the final step (you are almost there!): You have to multiply your daily balance, your daily rate and the number of days. Following the example:

($5.26 x 0.000274 x 30) = $0.04

 

Now you know how to calculate your credit card interest! If you liked the content, share with your friends and family to help them access this and a lot more information at Crediverso.

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Arturo Mendez

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