Credit Card Interest Formula:
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Credit card interest is the cost of borrowing money on your credit card. It's calculated based on your outstanding balance and the annual percentage rate (APR) set by your credit card issuer.
The calculator uses the simple interest formula:
Where:
Explanation: The equation calculates how much interest you'll pay each month based on your current balance and APR.
Details: Understanding your monthly interest helps with budgeting and shows how much carrying a balance actually costs you.
Tips: Enter your current credit card balance and APR. The calculator will show your estimated monthly interest charge.
Q1: How is APR different from interest rate?
A: APR includes both the interest rate and any fees, giving a more complete picture of borrowing costs.
Q2: Does this include compound interest?
A: This shows simple monthly interest. Actual credit cards use daily compounding which may result in slightly higher charges.
Q3: How can I reduce my interest payments?
A: Pay your balance in full each month, negotiate a lower APR, or transfer to a lower-rate card.
Q4: Why is my interest higher than this calculation?
A: Some cards charge interest from purchase date (not statement date), or you may have fees or penalty rates.
Q5: Is this calculation accurate for all credit cards?
A: Most cards use this basic method, but check your cardholder agreement for specific terms.