How Credit Card Interest Is Calculated
Most credit cards quote an annual percentage rate, or APR, but interest is usually charged daily. Issuers divide the APR by 365 to get a daily rate, apply it to your balance for each day of the billing cycle, and add the total to your statement.
Key points
- Daily rate equals APR divided by 365. A 22.9% APR is about 0.0627% per day.
- Interest is based on your average daily balance, so paying earlier in the cycle lowers it.
- A grace period typically applies to new purchases only if you paid the previous statement balance in full.
- Cash advances and balance transfers often have different rates and no grace period.
A worked example
On an average daily balance of $3,000 at 22.9% APR over a 30-day cycle, interest is about $56. If the balance never changed, it would cost roughly $687 a year. Paying only that interest each month would keep the balance the same forever.
Common mistakes
Many people assume the minimum payment covers the interest and a lot more. It often covers little more than the interest, so the balance falls slowly. Your statement includes a minimum payment warning that shows how long payoff would take.
Try the calculators
Credit card interest
Estimate interest for one billing cycle.
Credit card minimum payment
See how long minimum payments take to pay off a card.
Credit card payoff
Months to payoff and interest saved by extra payments.
Frequently asked questions
Is APR the same as the interest rate?
For cards, APR is the yearly rate. Because interest compounds daily, the effective yearly cost can be slightly higher.
How can I avoid interest?
Pay the full statement balance by the due date each month.