How to calculate credit card interest

Resources · Cards, loans and credit · 4 min read Advanced

Key points

• You need three numbers: your balance, your annual rate (APR) and the number of days or months.
• Monthly method: balance × APR ÷ 12.
• Daily method: average daily balance × APR ÷ 365 × days in the cycle.
• You can work backwards from your statement to check the rate you’re being charged.

Here’s how to calculate credit card interest for one month. Multiply your balance by your annual rate, then divide by 12. So a $2,400 balance at 21% a year costs about $42 in interest for the month.

That’s the short version. Below, you’ll find each step, the daily version lots of cards use, and a way to check your own statement. For the bigger picture of when interest starts and why it builds, read how credit cards charge interest.

Step 1: find your numbers

Pull up your latest statement or account summary. You need three things. First, the balance that interest is charged on. If you carried a balance over from last month, this is usually close to the statement balance. Second, the purchase rate, shown as a yearly percentage and often labelled APR. Third, the statement period, which is usually around 30 days.

One catch. Cards often have more than one rate. Purchases, cash withdrawals and balance transfers can each have their own, so if you’ve used the card in different ways, different parts of the balance may be charged differently.

Step 2: turn the yearly rate into a monthly or daily rate

You’re never charged the whole yearly rate in one go. It gets cut into smaller pieces.

For a monthly rate, divide the APR by 12. At 21%, that’s 1.75% a month. For a daily rate, divide the APR by 365 instead. At 21%, that’s about 0.0575% a day. Some providers divide by 360, which nudges the daily rate slightly higher.

Step 3: multiply by the balance

Here are both methods side by side. Assumptions: a $2,400 balance that stays the same all month, a 21% APR, a 30-day statement period and no new spending. The same maths works in any currency.

Close, but not identical. A 30-day month is a little less than a twelfth of a year, so the daily method comes out a touch lower. In a 31-day month it would come out a little higher.

If your balance moves around during the month, cards using the daily method work out an average daily balance first. Our guide to daily interest on credit cards walks through that properly.

How to calculate credit card interest over a year

One month is handy. A year tells you much more. Using the monthly method, here’s what happens when you keep paying a fixed amount.

Assumptions:

• Starting balance: $2,400
• APR: 21%, monthly rate = 21% ÷ 12
• Interest added to the balance each month before the payment
• Payment: $100 a month
• No new spending, no fees

Month 1. Interest is $42.00. The balance becomes $2,442.00. After the $100 payment, you owe $2,342.00.

After 12 months. You’ve paid $1,200. Of that, $432.93 went on interest. The balance is $1,632.93.

To the finish. At $100 a month, the card is cleared in 32 months. The last payment is $40.09. Total interest: $740.09.

Each month just repeats the same three steps on the new balance. That’s all a payoff calculator does for you, over and over.

How to check the interest on your statement

You can run the sum backwards too. Take the interest charged on your statement, divide it by the balance it was charged on, then multiply by 12.

For example: $42.00 ÷ $2,400 × 12 = 0.21, or 21%.

A little off? That’s normal. It usually comes down to the daily method and how many days were in the period, or purchases and payments landing partway through the month. Part of the balance might also sit at a different rate (cash withdrawals, say) or on a promotional rate.

If your answer is well above your purchase rate, though, check whether a higher rate has kicked in, such as a penalty rate after a late payment.

Common questions

What is the formula for credit card interest?

For one month, it’s balance × APR ÷ 12. For cards that charge daily, it’s average daily balance × APR ÷ 365 × the number of days in the statement period.

How much interest will I pay on $1,000?

At a 20% APR, about $16.67 for one month ($1,000 × 20% ÷ 12). Over a year, it depends on how much you pay off along the way.

Do I pay interest if I pay the full balance?

On many cards, paying the full statement balance by the due date means no interest on purchases. But cash withdrawals and some other transactions often attract interest from day one. Your card’s terms set the rules.

Try it

Put your own balance, rate and payment into the credit card payoff calculator to see your months and total interest. To see all your debts together, find your Freedom Date.

General information only, not financial advice. Your situation is your own.