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How Does Credit Card Interest Work?
4 Min Read | Last updated: July 3, 2025
Credit card interest is how you’re charged to borrow money. Understanding how credit card interest works can help you to plan ahead with your credit card payments.
At-A-Glance
- Interest rates can impact the cost of borrowing, and lower rates might mean more savings.
- With credit cards, however, you may be able to avoid interest by paying off your balance in full and on time every month.
- You can use a credit card interest calculator to see how much interest you could be charged on your credit card balance.
Credit cards can be a helpful tool for financing certain expenses, and some even allow you to earn rewards for eligible purchases. Paying the balance off on time is the best strategy and can help you to save on interest.
But if you’re carrying a balance or just curious about credit card interest rates, it’s a good idea to know the interest rate on your credit card, and how credit card interest works. In this article, we’ll uncover how credit card interest is charged and show you how you can calculate interest on your credit card, helping you to stay in control of your finances.
How Does Credit Card Interest Work?
To understand credit card interest rates, you’ll need to familiarize yourself with your Annual Percentage Rate (APR), which refers to the card’s stated interest rate for standard purchases.1 While interest rates and APRs signify two different things and can differ across lending products, you can equate your credit card’s interest rate with its APR, which card companies must disclose before issuing the card.2
How to Calculate Credit Card Interest
It’s easy to calculate your credit card’s interest using a credit card interest calculator. With the below calculator, you can estimate how much interest you could owe this statement cycle:
Credit Card Interest Calculator
Use the below calculator to see what your interest is for this billing cycle. Consider making payments early before the cycle closes to avoid late charges. Paying your outstanding balance in full and on time could help you avoid interest charges and lower your credit utilization ratio.
Interest Charged
for this statement cycle
Enter your credit card balance, annual percentage rate, and number of days in your billing period to calculate the interest you may be charged for this statement cycle.
This calculator is intended for illustrative purposes only and is not intended to offer any tax, legal, financial or investment advice. The terms and conditions of loans will vary by lender and may include additional fees or other terms that the calculator does not contemplate. If you have questions, please consult your own professional legal, tax and financial advisors.
Learn more about how to calculate credit card interest.
How Do Issuers Calculate Interest on a Credit Card?
Card issuers might use the compound interest method to calculate the daily or monthly interest that accumulates on unpaid balances.3 However, you might be able to avoid some interest charges altogether if you pay your entire credit card bill without fail each month by the due date. Although certain cards and transactions could still accrue interest or other fees even when you pay everything on time. These include cash advance fees and balance transfer fees.
Are There Different Types of Credit Card Interest?
Issuers could apply different interest rates depending on the type of balance you carry and the purchases you make. Here are some common interest rates to know:
- Balance Transfer APR
This could kick in when you move a balance from another card or loan onto a card with a lower or 0% APR for a limited time before switching to the regular rate. See Balance Transfer Cards from American Express®. - Introductory APR
This is the limited-time, special low rate that credit card issuers may offer for a set period after opening an account. This may take the form of 0% interest (on most purchases) for a set period of time, after which the card’s regular APR will apply. - Cash Advance APR
Taking out cash with a credit card might trigger a cash advance APR. - Penalty APR
Penalty interest might occur when you miss a payment, and it can be much higher than your original APR, but it could come back down after six months of making on-time payments.4
Your Credit Score May Also Impact Your Interest Rate
Credit scores reflect your borrowing behavior, indicate how financially responsible you are, and estimate the likelihood of you repaying your debts. The higher your scores, the less risk lenders may see, and the lower the interest rate could be.
Frequently Asked Questions
The average interest rate on a credit card varies. For example, in May 2025, average credit card interest rates hovered around 20.12%.5
If you pay your entire credit card balance every month and never carry a balance, you may not pay interest for most transactions. However, exceptions apply, and some transactions including balance transfers and cash advances will still incur interest charges.
The Takeaway
Knowing what credit card interest is and how to calculate it can help you make smarter borrowing and budgeting decisions. Paying your credit card balance off in full and on time and knowing when and how interest applies could help you save money in the long run.
1 “APR vs. Interest Rate: What’s the Difference?,” Experian
2 “What Do Interest Rates Really Mean?,” Equifax
3 “What Is Interest? How It Works for Borrowing, Deposits and Investing,” Experian
4,5 “Current credit card interest rates,” Bankrate
Kristina Russo is a CPA and MBA with over 20 years of business experience in firms of all sizes and across several industries, including media and publishing, entertainment, retail, and manufacturing.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
How and Why Your Credit Card APR May Change
Curious why your APR (Annual Percentage Rate) changed? There could be a number of reasons APR fluctuates. See some potential reasons for the change.
Is Your Interest Rate Based on Your Credit Score?
Interest rates are based on many factors, including the type of loan and your creditworthiness. A higher credit score may allow you to save money on interest.
The Differences Between APR, APY, and Interest Rates
APR and APY both include interest rates, but one is mostly for borrowers and the other for investors. Learn more about the differences between APR and APY.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
