How to Calculate Interest on Credit Card Balance

Credit card interest rates are higher than loans secured with collateral.

Credit cards offer the convenience of being able to pay for purchases with a piece of plastic without worrying about having sufficient cash or exact change. However, if you do not pay off your credit card in full at the end of the billing statement, you will be charged interest on your account's balance. The amount of interest will depend on the length of the billing period, the amount you owe and the interest rate on the account. The interest rate charged by credit cards is typically higher than secured loans, because credit cards do not have any collateral securing the loan. As a result, they are riskier for lenders.

Instructions

1. Multiply the balance of your credit card account by the annual interest rate expressed as a decimal. For example, if you carry a $2,550 balance on a credit card with an interest rate of 17.9 percent, you would multiply $2,550 by 0.179 to get $456.45.

2. Divide the number of days in the billing period by 365 (the number of days per year). For example, if the billing statement has 31 days, you would divide 31 by 365 to get 0.084931507.

3. Multiply the result from Step 1 by the result from Step 2 to calculate the total interest that accrues on the credit card balance. In this example, you would multiply $456.45 by 0.084931507 to find that $38.77 in interest would have accrued on the account.

References

• Digital Federal Credit Union: Calculating Finance Charges