1. What is Credit Card APR?

The Annual Percentage Rate (APR) is the yearly interest rate charged on outstanding credit card balances. It's used to calculate how much interest you'll pay when carrying a balance from month to month.

2. How Credit Card Interest is Calculated

Credit card interest is typically calculated using the average daily balance method:

Where:

• \( I \) — Interest charge
• \( ADB \) — Average daily balance during billing cycle
• \( APR \) — Annual percentage rate (as decimal)
• \( Days \) — Number of days in billing cycle

Explanation: The formula calculates daily interest by converting APR to a daily rate, then multiplies by the average balance and number of days.

3. Understanding the Components

Average Daily Balance (ADB): Sum of each day's balance divided by number of days in billing cycle.
APR: Expressed as percentage (e.g., 18% = 0.18 in calculation).
Days: Typically 28-31 depending on billing cycle length.

4. Using the Calculator

Tips: Enter your average daily balance in dollars, APR as percentage (e.g., 18.99), and days in billing cycle. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Add up your balance for each day of the billing cycle, then divide by the number of days in the cycle.

Q2: Is APR the same as interest rate?
A: APR includes both interest rate and certain fees, providing a more complete cost picture.

Q3: When is interest charged?
A: Typically when you carry a balance past the grace period (usually 21-25 days after statement closes).

Q4: How can I reduce interest charges?
A: Pay your balance in full each month, or make payments more frequently to reduce average daily balance.

Q5: Why divide by 365?
A: This converts the annual rate to a daily rate for more precise daily interest calculation.