How Much Credit Card Interest Will I Pay

How Much Credit Card Interest Will I Pay

How much interest a credit card user will pay is very important because, at the end of the day, it is going to determine the debts you would accrue, the balances you will be having and overall how your credit score is going to look like.

This is why it is important to know how much interest to pay. There is a way in which interests are calculated and it is important to know. This way, you are able to know exactly how much it is you can pay or can’t pay. You are also able to plan towards your debt repayment strategy.

The major issue here is just how are credit card interests calculated. Once you know, you will be able to determine how much interest you will be paying. This is the aim of this piece.

Credit card companies are more or less lending out money to you to use and after that, you pay back, you are charged a small fee for the money you use, however, if you fail to pay up on time, then you owe them, and the amount you owe is always carried forward. This is what is known as balance. Each time you delay the payment of your balance, you increase the interest you pay.

If you have a “Credit Card Balance” your credit card company will charge an interest known as the Annual Percentage Rate (APR). It is the amount you pay once there is a balance on the credit card you carry. The interest comes in three (3) different types. These types vary per how they are charged. Some are fixed, others vary and some are for promotion purposes.

For the fixed one, except in the scenario where you are told, this Annual Percentage Rate will be the same that you will be paying as long as you carry and use the card.

For those that vary, they can go up or come down, and their upward or downward adjustments will depend on the Federal Rates. As for the promotion rates, they will usually come with a very low rate for some periods or no rate at all.

To know which one applies to your card, you will have to look at your copy of the agreement given to you when you received your card. You can also find out by looking at the statements you receive each month.

In this piece, we want to find out how credit card interest is calculated.

Follow the few steps below to know how credit card interest is calculated.

To start with, look for the Annual Percentage Rate (APR) and then also look for your most recent balance within the statement of your card.

Secondly, do a division of the Annual Percentage Rate (APR) by 12. This number represents the months within a year. The answer you get is called the Monthly Periodic Rate (MPR)

The third step is that; you now multiply the MPR by the amount that you find as your most recent balance.

Let us look at an example.

Let us assume that currently, the most recent amount you owe on your credit card is USD 400 through the month.

And then also that your recent Annual Percentage Rate (APR) is 18%.

Calculating your monthly interest rate will be as follows.

First, divide 18% by 12, this will give you 1.5% or 0.015

Then you multiply the USD 400 by 0.015 (400 x 0.015)

This gives an amount of USD 6 for a month.

What this means is that the charges you have incurred are USD 6, which is based on the balance of USD 400.00

Apart from this, it is also possible to calculate an APR for a day on your credit card

Follow these steps to calculate the daily APR

To start with, look for the Annual Percentage Rate (APR) and then also look for your most recent balance within the statement of your card.

Secondly, do a division of the Annual Percentage Rate (APR) by 365. This number represents the 365 days in a year. The answer you get is called the Daily Periodic Rate (DPR)

The third step is that; you now multiply the DPR by the amount that you find as your most recent balance.

Let us look at an example.

Let us assume that currently, the most recent amount you owe on your credit card is USD 400 through the month.

And then also that your recent Annual Percentage Rate (APR) is 18%.

Calculating your daily interest rate will be as follows.

First, divide 18% by 365, this will give you 0.0493% or 0.000493

Then you multiply the USD 400 by 0.015 (400 x 0.000493)

This gives an amount of USD 0.197 for a day.

What this means is that the charges you have incurred are USD 0.971 for each day, this is based on the balance of USD 400.00

With this, it is possible to get your monthly interest charges. What you do is multiply the daily interest by how many days your billing cycle is. Many people have a billing cycle of 30 days.