How to Calculate Credit Card Interest
Understand how these rates are similar to and different from each other., Calculate Daily Periodic Rates (DPR)., Multiply that number by the number of days in the current month., Multiply your interest rate by your outstanding balance.
Step-by-Step Guide
-
Step 1: Understand how these rates are similar to and different from each other.
Both rates are types of "purchase" APRs, meaning that they apply to normal purchases made on a credit card.
You need to know your Daily Periodic Rate (DPR) to calculate how much interest you pay on your balance for the month.
This is explained in the next step.
The important thing to note is that if you pay off the balance before the end of your billing cycle, you do not pay interest on your purchases for either of these "purchase" APRs.
Interest is applied only to the outstanding balance at the end of each billing cycle.
A fixed APR won't change unless you continually fail to pay on time.
At that point, the credit card company will send you a letter setting your new default/penalty rate.
A variable rate can change depending on national rates or other economic factors.
For example, it might change based on fluctuation in the federal prime rate published by the Wall Street Journal.Look at your contract or credit card statement to figure out what your fixed or variable APR is. -
Step 2: Calculate Daily Periodic Rates (DPR).
Credit card companies usually calculate interest charges on a monthly basis.
Because months vary in length — e.g., January is 31 days and February is 28 days — most companies use DPRs to calculate interest.
To calculate your DPR, divide your annual APR by 365 (the number of days in one year).
Take, as an example, a fixed or variable APR of 19 percent: 19 ÷ 365 =
0.052.
This is your DPR. , In January, you would multiply your DPR by 31:
0.052 x 31 =
1.61.
Your monthly interest for January would be
1.61 percent.
In February, you would multiply your DPR by 28:
0.052 x 28 =
1.46.
Your monthly interest for February would be
1.46 percent , Remember that if you pay off your entire balance by your billing date, you don’t pay any interest at all.
But, if you make the minimum payment or anything less than the entire balance, you pay interest on the outstanding balance.
Convert your interest rate to a decimal by moving the decimal point two positions to the left.
So, a rate of
1.61 percent in January would be
0.0161, and a rate of
1.46 percent in February would be
0.0146.
If your outstanding balance on the card at the end of January’s billing cycle is $1,000, you would pay $1,000 x
0.0161, or $16.10.
If your outstanding balance at the end of February’s billing cycle is $1,000, you would pay $1,000 x
0.0146, or $14.60. -
Step 3: Multiply that number by the number of days in the current month.
-
Step 4: Multiply your interest rate by your outstanding balance.
Detailed Guide
Both rates are types of "purchase" APRs, meaning that they apply to normal purchases made on a credit card.
You need to know your Daily Periodic Rate (DPR) to calculate how much interest you pay on your balance for the month.
This is explained in the next step.
The important thing to note is that if you pay off the balance before the end of your billing cycle, you do not pay interest on your purchases for either of these "purchase" APRs.
Interest is applied only to the outstanding balance at the end of each billing cycle.
A fixed APR won't change unless you continually fail to pay on time.
At that point, the credit card company will send you a letter setting your new default/penalty rate.
A variable rate can change depending on national rates or other economic factors.
For example, it might change based on fluctuation in the federal prime rate published by the Wall Street Journal.Look at your contract or credit card statement to figure out what your fixed or variable APR is.
Credit card companies usually calculate interest charges on a monthly basis.
Because months vary in length — e.g., January is 31 days and February is 28 days — most companies use DPRs to calculate interest.
To calculate your DPR, divide your annual APR by 365 (the number of days in one year).
Take, as an example, a fixed or variable APR of 19 percent: 19 ÷ 365 =
0.052.
This is your DPR. , In January, you would multiply your DPR by 31:
0.052 x 31 =
1.61.
Your monthly interest for January would be
1.61 percent.
In February, you would multiply your DPR by 28:
0.052 x 28 =
1.46.
Your monthly interest for February would be
1.46 percent , Remember that if you pay off your entire balance by your billing date, you don’t pay any interest at all.
But, if you make the minimum payment or anything less than the entire balance, you pay interest on the outstanding balance.
Convert your interest rate to a decimal by moving the decimal point two positions to the left.
So, a rate of
1.61 percent in January would be
0.0161, and a rate of
1.46 percent in February would be
0.0146.
If your outstanding balance on the card at the end of January’s billing cycle is $1,000, you would pay $1,000 x
0.0161, or $16.10.
If your outstanding balance at the end of February’s billing cycle is $1,000, you would pay $1,000 x
0.0146, or $14.60.
About the Author
Theresa Fisher
Experienced content creator specializing in pet care guides and tutorials.
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