What is interest?
Credit Card services allow you to borrow money. In return, Credit Card providers Charge you a percentage fee on the money you borrow.
This fee is the interest rate that is applied if you don’t pay the whole balance outstanding on your Card in the given month. This interest is charged on your outstanding balance and not on the total money you borrow.
What is APR?
APR stands for Annual Percentage Rate.
APR on Credit Cards
Even if you intend to keep a regular Credit Card repayment schedule, you should always check the APR to find out what you will pay each month. Cards with a lower APR tend to have less reward and loyalty programs but this can be a useful trade-off for some consumers.
How can I calculate the interest on a Credit Card balance?
The easiest way to calculate Credit Card interest is by using the APR. By comparing APR, you can find the best Credit Card for your own uses. Different APRs apply to different uses such as, cash withdrawals, balance transfers and purchases. If you intend to use your Credit Card primarily for purchases, then you will want to look for the lowest APR on purchases.
Monthly or daily interest rates are also used by companies to calculate the interest on outstanding balances.
- If your Credit Card has an APR of 40.2% you can calculate the daily interest rate by dividing 40.2% by 365. This gives you a daily APR of 0.11%
- If you had an outstanding balance of 1000 on your Card you would be charged
33.04 in interest. This is calculated as taking the APR of 0.11% times the monthly billing days (30)
- The more of your outstanding balance you repay each month, the less interest your Credit Card will accrue.