Credit Card Interest Calculator

Use the credit card interest calculator to estimate how much interest you would need to pay if your credit card balance were unpaid. This device's high specification allows you to examine and compare interest payments in different repayment scenarios.

While the line chart and pie graph help you to analyze the results visually, you can follow your credit card's monthly interest from month to month in the payment schedule. In the following article, you can learn:

• How to use the credit card calculator;
• How to calculate credit card interest; and
• How credit card interest works.

If you have credit card debt, check our credit card minimum payment calculator to estimate how long it would take to pay off your balance with minimum payments.

Credit cards have a credit limit, which is the maximum amount you can spend. Going over this limit can lead to extra fees. Credit card interest rates are usually higher than loans like mortgages or car loans, so it’s smart to pay your full balance each month. Some cards allow cash advances, but these often come with high fees and interest, so they’re best used only in emergencies.

So, before you ask yourself, "How do I calculate credit card interest?" or research credit card interest vs APR differences, you must become familiar with what a credit card is.

Here are a few things a credit card allows you to do:

• Borrow money to make purchases and repay it later (with interest);
• Build your credit score when used responsibly;
• Gain cashback, rewards, or travel points depending on the card; and
• Gain fraud protection since it is safer to carry than cash.

If you have a credit card and have had an unpaid balance for several months, you may be perplexed when you see the considerable amount of interest charged.

However, before we delve into this, here are some terms you need to understand:

Interest rate or APR

Credit card issuers disclose the interest rate in the form of the Annual Percentage Rate (APR), which represents the credit's actual yearly cost. Still, in most cases, it is applied daily, meaning that they add (capitalize) the charged interest each day after the grace period.

Therefore, you can find the utilized interest rate on your credit card statement as the Annual Percentage Rate, or APR. Note, that the credit card issuer may apply variable or non-variable APRs, and also it may differ depending on the type of unpaid balance. For example, the APR for purchases might be 20 percent but for cash advances it could be 25 percent.

Minimum payment

A credit card's minimum payment is the lowest amount you need to pay by the due date to avoid any penalties or late fees and meet the terms of your card agreement. Therefore, it is crucial to transfer this amount monthly by keeping to the deadlines even when you are short of money. Of course, if possible, try to pay more than the minimum to reduce the financial charge on your remaining balance.

Grace period

A grace period is the period between the end of a billing cycle and your payment due date. If you pay your balance in full during this time, you may not be charged interest.

Convert your APR to a daily periodic rate

Since interest is calculated daily, you must convert the APR to a daily periodic rate. To do that, divide the APR by 365. Note that some banks may use 360 for the computation, which will not result in a significant difference.

Daily interest rate = APR / 365

In this section, we will explore more about how credit interest works:

1. Determine the amount to which the interest rate is applied

   Credit card issuers most commonly use the average daily balance for interest computation, that is, the average of what you owed each day during the billing cycle.

   The first thing is to find your unpaid balance — the amount carried over from the previous month. This balance changes everyday you make a financial transaction. For example, when you make a purchase, the balance goes up; when you make a payment, it goes down.

   Once you have all the daily balances in a billing cycle, you need to sum them up and then divide by the number of days in the billing period to get the average daily balance.

   Average daily balance = Balance #1 + Balance #2 + Balance #3 ... / Number of days in the billing cycle

   As you can see, this procedure requires balances on each day during the billing cycle, which makes the computational process tedious. For ease of use, this credit card monthly interest calculator only asks you for the unpaid balance.

2. Calculate the charged interest

   At this point, you can determine the charged interest: multiply your average daily balance by the daily interest rate, and then multiply that result by the number of days in the billing period.

   Credit card interest = Average daily balance × Daily interest rate × Number of days in the billing cycle

   If interest is capitalized on your balance daily, which is the general practice of credit card issuers (and applied in this credit card monthly interest calculator as well), the actual interest amount might be higher. The divergence between the different frequencies of interest capitalization becomes more profound when you carry the unpaid balance for a longer period. To familiarize yourself with this procedure and see different compounding frequencies in different time horizons, check out our compound interest calculator.

For the first step, you need to set the following parameters in the specification section:

• Current balance — your outstanding unpaid balance on your credit card.
• APR — the Annual Percentage Rate.
• Repayment by — you can set here whether you would like to pay back your credit by fixed monthly or minimum required payments.
• Monthly fixed payment — the credit card payment you transfer monthly to reduce the unpaid balance.
• Additional monthly payment — the additional payment you may devote to repayment, which may result in a shorter repayment period with lower interest charges.

After providing all of the above parameters, you will receive the following results:

• Results

  You can learn here how long it takes to pay off your credit, what is the total payment amount, and the charged interest with the fixed payment and the additional payment.

In the Minimum payment and compounding settings section of the calculator, you can set the parameters for the minimum monthly payment requirements and the calculation method applied by the credit card issuer, along with the compounding frequency.

When using a credit card, it’s essential to understand the difference between interest and APR (Annual Percentage Rate). Although they sound similar, they mean different things.

• Credit card interest — This is the basic cost you pay for borrowing money if you don’t pay off your full balance each month.
• APR — This is the full yearly cost of borrowing, including the interest rate plus any extra fees like annual charges or transfer fees.

Another thing to know is that some credit cards have a fixed APR (it usually stays the same) and some have a variable APR (it can change based on the market, which means your rate might go up or down). Also, many cards offer promotional or introductory APRs, where you pay a very low interest rate, sometimes 0%, for the first few months. After that period ends, the regular APR kicks in, so it’s good to plan ahead.

The credit card interest calculator's results should be considered a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications, which are, despite our best efforts, not exhaustive.

Thus, primarily because of the simplifications mentioned in the text, the calculator is created for instructional purposes only. Yet, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive helpful feedback and advice.