1. What is Interest Rate Comparison?

This calculator compares the monthly interest you would pay on a credit card versus a traditional loan for the same principal amount. Understanding this difference can help you make better financial decisions.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Monthly interest payment
• \( P \) — Principal balance (amount borrowed)
• \( R \) — Monthly interest rate (APR/12 for credit cards or loan rate/12)

Explanation: The calculator converts annual rates to monthly rates by dividing by 12, then multiplies by the principal to show what you'd pay each month in interest.

3. Importance of Comparing Rates

Details: Credit cards typically have much higher interest rates than personal loans. This comparison shows how much you could save by using a lower-interest loan instead of carrying credit card debt.

4. Using the Calculator

Tips: Enter your current credit card balance, the card's APR, and a comparable loan's interest rate. The calculator will show the monthly interest for both options.

5. Frequently Asked Questions (FAQ)

Q1: Why compare credit card and loan interest?
A: Credit cards often have APRs of 15-25%, while personal loans may be 5-15%. This difference can save you significant money.

Q2: Does this include minimum payments?
A: No, this shows only the interest portion. Minimum payments would include principal plus interest.

Q3: Are there other costs not shown here?
A: Loans may have origination fees, and credit cards may have other fees that aren't reflected in this simple interest calculation.

Q4: What about compound interest?
A: This shows simple monthly interest. Credit cards actually compound daily, making the real cost slightly higher.

Q5: Should I always choose the lower rate option?
A: While rate is important, also consider loan terms, fees, and your ability to make regular payments.