How To Use Credit Card Interest Calculator
If you don’t pay off your credit card balance each month, you’re paying more than you should in interest. But how much? Enter your credit card balance, your interest rate, and an average monthly payment OR a time period to see how much interest you’d actually pay based on your monthly payment or in a specific period of time.
Late Payments Damage Your Credit Rating
If you make your payment after the monthly deadline on your statement, youll have to pay a late payment charge.
Any 0% or other introductory rate could also be withdrawn. Plus, other companies will see you were late paying as part of your credit record.
This could have a negative impact on future credit applications, such as applying for a mortgage or a car loan.
Dont Be Afraid To Negotiate Again In The Future
John Rampton, founder of Due, has successfully negotiated lower rates for his credit cards and does so periodically. He says to expect to haggle and recommends you dont give up after one call.
From his experience, credit card companies seem more willing to offer lower rates when you ask after making consistent payments on your card for at least six months. He follows up with requests every six months to ask for lower rates until he receives a no.
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Who Creates Your Credit Report And Credit Score
There are two main credit bureaus in Canada:
These are private companies that collect, store and share information about how you use credit.
Equifax and TransUnion only collect information from creditors about your financial experiences in Canada.
Some financial institutions may be willing to recognize a credit history outside Canada if you ask them. This may involve extra steps. For example, you may request a copy of your credit report in the other country and meet with your local branch officer.
How Interest Is Calculated
The amount of interest you could pay on any credit card borrowing is worked out as a percentage.
- The higher that percentage, the more expensive it’ll be to borrow.
- The lower it is, the cheaper it’ll be.
You might find the , or Annual Percentage Rate, useful when making quick comparisons between credit cards, but make sure you read through all details carefully to understand all borrowing costs, including .
For a quick run through, watch our short video.
Helping you understand credit card interest rates.
This is Ben.Hes got a new credit card to help him pay for some expenses. Ben knows that when he borrows money with his credit card, hell be charged interest, as well as any fees and other charges.
The amount of interest Ben needs to pay is worked out as a percentage of the money hes borrowed.
And thats his interest rate.
The higher it is, the more expensive itll be for Ben to borrow.
The lower it is, the less expensive itll be for him to borrow.
There are generally two ways in which youll see interest rates for credit cards.
The first is the Simple Annual Rate, or SAR, which is usually divided by 365 to work out how much youll be charged each day. Its then shown as either a monthly rate or an annual rate.
And the second is the Annual Equivalent Rate, or AER, also known as per annum, AER shows the effect of compounding the simple rate over one year.
Ben then pays only his £25 minimum payment on that due date.
We hope this info helps. Thanks for watching!
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Other Ways To Decrease Rates
There are other ways to decrease or even eliminate the interest rates on credit card purchases.
Pay Your Bill Early: Credit cards generally offer a grace period where you wont be charged interest on your purchases. If you pay the bill in full before the due date, you could avoid paying interest altogether.
Pay More Than Once a Month: If you make bi-weekly payments, for example, you can drastically cut the interest charges. How could this work? Lets say you have a $2,000 balance and you have $1,000 for a payment. If you paid $1,000 on the 20th day of a 30-day billing period, the average daily balance would be about $1,633. But if you paid $500 on Day 10 and $500 on Day 20, the average daily balance would be $1,467 .
Pay More Than the Minimum: Even a small uptick in the payment can save plenty in interest charges.
Only Charge What You Can Afford: If you use the credit card for convenience and not credit buying things you would normally pay for with available cash you never have to worry about overspending. You can pay off the bill and not be saddled with interest charges. It might help to carry a notebook in your pocket and keep track of your purchases to assure youre staying on course.
Current Credit Card Usage
As of 2017, an estimated 189 million Americans have at least one credit card and use it often to make retail purchases and pay bills. About 18% of the cardholders carry 3-4 cards, 9% carry 5-6 cards and 7% carry seven or more cards.
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Interest On Balance Transfers
Once any interest free period offers have ended, we charge interest on balance transfers at your standard rate.
If your application is successful, you’ll be offered an ongoing annual interest rate of 19.9% or 24.9%. This will depend on our view of your circumstances.
Interest is charged on balance transfers from the day of transfer, even if you pay your balance in full on your payment due date. However, you may pay no interest or a reduced rate of interest if you have an introductory or promotional balance transfer rate.
You can check your balance transfer interest rate in the Interest Summary Table in your statement.
Please note that fees may apply to balance transfers.
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How do Credit Card interest rates work?
Credit card interest rates are usually quoted in terms of .
A low or lower APR means you will have less interest to pay on your credit card debt. It will cost less to borrow money than if your credit card had a high APR. However, some credit cards have longer interest-free periods which will also affect the amount of interest you are charged.
How Is The Minimum Payment On A Credit Card Calculated
A minimum payment is the smallest amount you can pay on your credit card bill to avoid late fees and remain in good standing. As long as you make this payment on or before the payment due date, your account is considered current.
Typically, the minimum payment is a percentage of your total current balance, plus any interest you owe. So if you owe $2,000, your minimum payment might be $40. Learn More: What is a Credit Card Minimum Payment?
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Q: How Are My Credit Card Payments Applied Do They Go To The Items With The Lowest Interest Rate First
A: If youre making only the minimum payment, it will usually go toward the portion of your balance with the lowest interest rate. Payments above your minimum due will be allocated proportionately to each balance with a different interest rate. This means you cannot pay off your higher interest rate balance first and leave the low interest rate balances last. The way payments are applied varies by the credit card lender, so call the lenders customer service line to inquire if youre not sure what the policy is.
How Are Credit Card Interest Rates Calculated
Credit card interest rate is calculated as the Annual Percentage Rate of charge. It is the interest rate for the whole year rather than a monthly rate. However, while calculating interest rate for monthly dues, the monthly percentage rate will be applied to the transactions. The APR and MPR vary from one bank to another and one card to another. While applying for a credit card, its important to know how much APR is being charged on a particular card.
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Calculate Your Interest Charges
The final step is to calculate how much interest youll pay. This is based on the average daily balance, your daily periodic rate and the number of days in the billing cycle.
So using the examples from above it would look like:
- $503.33 x .0.000466 x 30 = $7.04
That may not be an insurmountable amount of interest for one month, but dont be deceived. If you let a balance ride or just make the minimum payments each month, it can cost you plenty over time. If you do that same calculation using an average daily balance of $10,000 for example, youll accumulate $139.80 in interest just for that month.
Accumulating finance charges are why cards with 0% APR offers can be so appealing to someone who needs extra time to pay off their bill. If you have a $10,000 balance on a card with a 12-month 0% APR offer and make no payments for a year, youll owe that same $10,000 without piling a years worth finance charges on top of your existing debt.
But, if youre considering shifting a balance to a card with a promotional 0% APR on balance transfers, know that these cards often carry a balance transfer fee. It pays to weigh the pros and cons before transferring a balance.
What Is A Good Interest Rate For A Credit Card
Credit card interest rates vary widely, which is one reason to shop around if you’re looking for a new card. Typically, the better your credit, as represented by your , the better the rate you’ll be eligible to receive. That’s because the credit card company will consider you to be less of a risk than someone with a lower score.
In shopping for a credit card, knowing your credit score and the range into which it falls can help you determine which cards and what kinds of interest rates you might be eligible for before you apply. You can obtain your credit score for free at a number of websites and also from some credit card companies. Note that your , which you can also obtain free of charge at AnnualCreditReport.com, do not include your credit score.
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Foreign Currency Conversion Charges
Financial institutions calculate foreign currency charges in different ways. Some transactions are converted directly into Canadian dollars. Others may be first converted to U.S. dollars and then to Canadian dollars. The foreign currency conversion charge is applied after the purchase is converted to Canadian dollars.
Example: Foreign currency conversion charge calculation
Suppose you made a 1,000 purchase with your credit card. The exchange rate is 1.42 to convert euros directly to Canadian dollars. Your credit card agreement shows a conversion charge of 2.5%.
After your financial institution converts your 1,000 purchase to Canadian dollars, it will cost $1,420. The 2.5% foreign currency conversion charge is applied to the $1,420 for a fee of $35.50. The total amount of your purchase is $1,455.50 in Canadian dollars.
Read the terms of your credit card agreement for the total foreign currency conversion charge. Ask your financial institution about anything you dont understand.
Consider A Balance Transfer Credit Card Instead
Balance transfer cards may provide you an alternative for getting a lower interest rate on your current credit card debt. This may allow you to consolidate your existing balances from multiple cards onto a single, new card.
Youll want to use a credit card with a 0% introductory annual percentage rate, or APR, offer for balance transfers to save money on your debt repayment. Here are some cards to consider.
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Calculating Interest For A Tiered Apr
Determine Your Average Daily Balance
This is the aggregate total of what you spent and either paid off and/or were refunded every day throughout your billing cycle, divided by the number of days in your billing cycle.
If you’ve always paid your purchases in full by the due date, you won’t have any interest payments to make and your average daily balance isn’t really a factor. However, if you plan to carry a balance, to calculate your average daily balance when you need to determine interest, log onto your bank account online and track the charges and credits that went through on each individual day, creating a rolling total as you move through the days of your billing cycle.
This will provide you with an aggregate total that you can then divide by the number of days in your billing cycle .
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Other Credit Card Interest Rate Facts To Keep In Mind:
- Separate interest rates and charges can apply to cardholders cash advance balance and balance transfer balances. Furthermore, many credit cards will impose a higher penalty interest rate when cardholders fail to make payments.
- Most credit card variable interest rates can change with the Prime Rate. The Prime Rate is an interest rate that is three percentage points above the federal funds rate, which is set by the Federal Reserve Bank. Because this interest rate can increase, cardholders should be careful not to incur more interest charges than they can comfortably pay each month.
Remembering these simple facts about credit card interest will empower you to make the best financial decisions for yourself and your family. Use Discovers to estimate the interest and payoff time for any credit card.
Originally published February 27, 2015.
Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Understanding Your Credit Card Company
When you owe a large sum of money to a credit card company, it is easy to begin to fear talking to them. Perhaps people think they’re going to get yelled at, shamed about the situation, or possibly penalized. The reality is that are in business to make a profit, and their biggest profit is made from charging interest to people with unpaid balances. The bigger the balance, the more money the credit card company is able to make. In other words, if you are carrying a large balance, you are one of their best customers. The credit card company should love you and want you to stick around to keep paying interest. This positioning is something you can use in your favor.
Most credit card companies don’t want to lose you or your balance, especially if you are paying a rate that’s double or triple the historical rate of return in the stock market. In fact, many credit card companies will go to great lengths to keep you happy and keep you spending, lest they go out of business. This fact is your most important piece of leverage when it comes to getting your APR lowered.
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Find Your Apr Through Your Credit Card Issuer’s Website
If you have an online account with your card issuer, you can log in and navigate to your account information section to find the APR associated with your card.
Your card issuer’s website should have the most up-to-date information on APR, making this a smart choice to see what your credit card APR is today.
How Credit Card Interest Is Determined
Your creditor determines the interest rates for your credit account by looking at your credit history and annual income. When you apply for a credit card, your issuer will do a hard credit inquiry into your credit report. This will allow it to see your credit score, payment history, number of credit accounts and other valuable information about the way you use credit.
Your issuer will use this information to determine whether to issue you a credit card, as well as what your credit limit and interest rates will be. People with higher credit scores usually qualify for lower interest rates. Thats why it can be a good idea to improve your credit score before applying for your next credit card.
According to the , credit card issuers are required to give you 45 days notice before raising your interest rates . Your interest rates might go up if your credit score goes down, for exampleor you might miss a payment and get stuck with a penalty APR. Your credit card issuer can also lower your interest rates at any time. A decrease in your interest rates might be related to an increase in your credit score, or it might be linked to a debt management plan.
Learn more: What is a good APR for a credit card?
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