1. What is Credit Card Interest?

Credit card interest is the amount you're charged for borrowing money, calculated as a percentage of your outstanding balance. The Money Advice Service recommends this calculation to help consumers understand their monthly interest charges.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal balance (GBP)
• \( R \) — Monthly interest rate (APR / 12, as a decimal)
• \( I \) — Monthly interest charge (GBP)

Explanation: The formula calculates the monthly interest by converting the APR to a monthly rate and applying it to your current balance.

3. Importance of Interest Calculation

Details: Understanding your monthly interest helps with budgeting, debt repayment planning, and comparing credit card offers. Even small differences in APR can significantly impact total interest paid.

4. Using the Calculator

Tips: Enter your current credit card balance in GBP and the card's APR percentage. The calculator will show your estimated monthly interest charge.

5. Frequently Asked Questions (FAQ)

Q1: Is this the exact interest I'll be charged?
A: This is an estimate. Actual charges may vary based on your card's specific terms, payment timing, and whether you make new purchases.

Q2: How can I reduce my interest payments?
A: Pay more than the minimum payment, pay early in the billing cycle, or consider balance transfer cards with lower rates.

Q3: What's a typical credit card APR?
A: UK credit cards typically range from 18.9% to 39.9% APR, with the average around 23-25%.

Q4: Does this include compound interest?
A: This calculates simple monthly interest. Actual credit cards use daily compounding, but this gives a close monthly estimate.

Q5: What if I make partial payments?
A: Interest is calculated on your remaining balance, so payments will reduce future interest charges.