How to Calculate Interest Rates From a Finance Charge
When a company issues you a finance charge, you can calculate the interest rate used if you know the balance of your account and the time over which the finance charge accrued. By calculating the interest rate, you can compare the cost of the finance charge to other methods of financing so you can decide which offers the lowest rate. For example, a $20 finance charge may not sound like much, but if you only get the loan for two weeks, it can represent a significant interest rate.
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Instructions
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Divide the finance charge by the average balance. For example, if you had a balance of $2,600 and a finance charge of $20, divide $20 by $2,600 to get 0.007692308.
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Divide the result by the number of days over which the finance charge accrued. For this example, if the financial charge accrued over 14 days, divide 0.007692308 by 14 to get 0.000549451.
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Multiply the result by 365 to find the annual interest rate expressed as a decimal. In this example, multiply 0.000549451 by 365 to get 0.200549451.
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Multiply the annual interest rate as a decimal by 100 to find the annual interest rate percent. Finishing the example, multiply 0.200549451 by 100 to find the annual interest rate is approximately 20.05 percent.
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