How do they calculate interest on a credit card?
Most of the math comes down to one line, shown below. The Consumer Financial Protection Bureau (CFPB) says many issuers calculate interest daily, based on your average daily balance, and that the rate charged each day is the daily periodic rate. Regulation Z, the federal rule for card disclosures, defines that balance: add up the balance for each day of the billing cycle, then divide by the number of days.
Interest = (APR ÷ 365) × average daily balance × days in the cycleRegulation Z also ties the daily rate to the APR: the APR is the periodic rate multiplied by the number of periods in a year. So 24% over 365 days is 0.0658% a day.
- Divide your APR by 365 to get the daily rate.
- Write down your balance at the end of each day in the billing cycle.
- Add those balances up and divide by the number of days. That is your average daily balance.
- Multiply the daily rate by the average daily balance and by the number of days.
A worked example with a purchase mid-cycle
Say you start a 30-day cycle owing $1,000 at 24% and buy something for $500 on day 11. Your balance is $1,000 for ten days and $1,500 for twenty. That sums to $40,000 of daily balances, or an average of $1,333.33. Interest for the cycle is $26.30.
| Days | Balance | Balance × days | Interest |
|---|---|---|---|
| 1 to 10 | $1,000 | $10,000 | $6.58 |
| 11 to 30 | $1,500 | $30,000 | $19.72 |
Use the builder above to enter your own purchases and payments and get the same table for your cycle. The dashed line on its chart is the average daily balance.
Credit card interest per month, by balance and APR
On a steady $5,000 balance, 24% APR costs $98.63 over 30 days, and 30% costs $123.29. These figures use a steady balance. The APRs are examples to compare, not current market rates.
| Balance | 15% | 18% | 21% | 24% | 27% | 30% |
|---|---|---|---|---|---|---|
| $500 | $6.16 | $7.40 | $8.63 | $9.86 | $11.10 | $12.33 |
| $1,000 | $12.33 | $14.79 | $17.26 | $19.73 | $22.19 | $24.66 |
| $2,500 | $30.82 | $36.99 | $43.15 | $49.32 | $55.48 | $61.64 |
| $5,000 | $61.64 | $73.97 | $86.30 | $98.63 | $110.96 | $123.29 |
| $7,500 | $92.47 | $110.96 | $129.45 | $147.95 | $166.44 | $184.93 |
| $10,000 | $123.29 | $147.95 | $172.60 | $197.26 | $221.92 | $246.58 |
| $15,000 | $184.93 | $221.92 | $258.90 | $295.89 | $332.88 | $369.86 |
| $20,000 | $246.58 | $295.89 | $345.21 | $394.52 | $443.84 | $493.15 |
| Balance | 15% | 18% | 21% | 24% | 27% | 30% |
|---|---|---|---|---|---|---|
| $1,000 | $0.41 | $0.49 | $0.58 | $0.66 | $0.74 | $0.82 |
| $5,000 | $2.05 | $2.47 | $2.88 | $3.29 | $3.70 | $4.11 |
| $10,000 | $4.11 | $4.93 | $5.75 | $6.58 | $7.40 | $8.22 |
| $20,000 | $8.22 | $9.86 | $11.51 | $13.15 | $14.79 | $16.44 |
The number of days matters as well. At 24%, $5,000 costs $92.05 in a 28-day cycle and $101.92 in a 31-day cycle, with no change in your balance or rate.
How the grace period lets you pay no interest
The grace period is the time between the end of a billing cycle and your due date. Pay the full balance by then, and purchases generally aren't charged interest. In the example above, you're carrying a balance, so that $500 purchase adds $6.57 of interest in its first cycle. With a grace period and full payment, it would add $0.
The trap is how easily it ends. The CFPB says that if you don’t pay in full by the due date, you’re charged interest on the unpaid part, and on new purchases from the date you make each one. It also says that if you pay in full some months and not others, you may lose the grace period for the month you don’t pay in full and for the month after.
Grace periods typically cover only purchases, the CFPB says. Cash advances generally charge interest from the transaction date. A $500 advance at 29.99% for 20 days costs $8.22, before any cash advance fee.
Does paying earlier in the month save interest?
Yes, if you're carrying a balance, because interest runs daily. A $1,000 payment on a $5,000 balance at 24% leaves $79.56 of interest if it arrives on day 2, and $94.68 if it arrives on day 25. The saving is $15.12, from the same money sent sooner. The CFPB makes this point: without a grace period, the sooner you pay, the less interest you pay.
One cycle's saving looks small, and the balance is the bigger lever. To see what it takes to clear the debt, use our credit card payoff calculator. If a lower rate is on offer, the balance transfer calculator weighs it against the fee.
Why your statement may not match this calculator
Your card agreement sets the details, and three of them can move the number:
- Compounding. If interest joins the balance each day, $5,000 at 24% costs $99.58 over 30 days, not $98.63. Over a full year, daily compounding turns 24% into 27.11%. There's a switch for this in the advanced options.
- Days in the year. A 360-day year makes the same balance cost $100.00. The advanced options cover this too.
- Posting dates and new purchases. Regulation Z names one average daily balance method that includes new purchases and one that excludes them. A transaction’s date and its posting date can also differ.
This calculator also leaves out fees, minimum interest charges, and promotional rates, and it applies one purchase APR. Your statement is the record to rely on, and your card agreement explains the method your issuer uses.
Common questions
How do I find my daily periodic rate?
Divide your APR by 365, unless your agreement uses a different number. 24% ÷ 365 = 0.0658% a day.
How much interest will I pay in a month on my balance?
On a steady balance, multiply the balance by the APR, divide by 365, and multiply by the days in the cycle. For $5,000 at 24% over 30 days, that's $98.63.
Why did I get charged interest after paying my bill in full?
If you had been carrying a balance, the CFPB says you may lose the grace period for the month you don’t pay in full and for the month after. So interest can still appear on the next statement.
Is interest charged on interest?
It depends on your agreement. If interest compounds daily, each day’s interest joins the balance for the next day. Turn on the switch in advanced options to see the difference.
Does a higher payment change this month’s interest?
Yes, from the day it posts, since it lowers your daily balance for the rest of the cycle. The earlier the payment, the more it helps, as the day 2 and day 25 example above shows.
Sources
- How does my credit card company calculate the amount of interest I owe? · Consumer Financial Protection Bureau
- What is a grace period for a credit card? · Consumer Financial Protection Bureau
- 12 CFR 1026.60: Credit and charge card applications and solicitations, balance computation methods · Consumer Financial Protection Bureau
- 12 CFR 1026.14: Determination of annual percentage rate · Consumer Financial Protection Bureau