How to Calculate Credit Card Interest Rate

Here are some instructions on how to calculate credit card interest rate. Each bank offers credit cards and they all usually have different interest rates and APRs attached to them. Additionally, banks are very good at convincing how their deal on a credit card is different to one being offered by another bank. Naturally, they want you to choose them! So it is very useful to be able to work out the interest rate being offered to you and, also, to know how this differs from APR. Choose the best credit card at DontSpendMore.com

If you take cash out from a cash machine or go behind on a payment with your credit card, you will normally be charged higher interest. However, due to the fact that different banks calculate interest rates in a different way, you may end up being charged a very different amount form two cards which you thought had a very similar interest rate. This is because there are a plethora of different ways by which your interest rate can be calculated. A key concept to understand is that what it is important is when the card starts and stops charging you interest, not necessarily just the interest rate it offers. 

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The APR is a confusing term which it is important to understand. The APR is distinct from the basic interest rate and includes additional costs and fees. Therefore, APR is a very important figure to understand as it gives you a much more realistic figure of what you should expect to be paying the bank.

However, not all fees will be included in the APR and this is vital to know. For example, an arrangement fee for a particular purchase or transaction may not be included in the APR and may be much more expensive with one bank than another. Thus, it is key to find out all the details of each APR detail before making a choice.

Banks distinguish between purchase interest, cash interest, special interest and interest on interest. How do the banks work out how to calculate credit card interest rate? When the interest rate is calculated at the end of each statement period, each of these are taken into account.

The banks work out your average daily outstanding balance by finding the balance at the end of each day for each of these types of transaction. Then each daily balance is added up and divided by the amount of days in the relevant period. The daily rate is then calculated by dividing the different APRs which apply to your card by 365.

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