If you carry balances on your credit card from month to month, your credit card purchase APR (annual percentage rate) determines how much you must pay in interest. A higher purchase APR means you will owe more in interest if you carry a balance, while a lower purchase APR means you will owe less.
You can avoid credit card interest altogether by paying your statement in full each month before the grace period ends, but keep in mind that this can vary depending on whether you have a personal or business credit card. But if you do carry a balance on your card, greater insight into how interest is calculated and how to calculate it on your own can help you understand why this interest shows up on your statement.
How to find your credit card's APR
Your credit card APR may be available in multiple locations: on your most recent credit card statement, in your card's terms and conditions, on your card issuer's website, or by reaching out to the credit card issuer directly.
Note that there may be different APRs for purchases, cash advances and balance transfers. Be sure you refer to the correct one when calculating what you owe. When we say "APR" in this article, we're referring to the APR for purchases.
Find your APR on your credit card statement
Typically, you can find your credit card APR near the end of your monthly statement. There will be a section of the statement marked "Interest Charge Calculation" or a similarly worded section.
The statement section also shows you how much of your balance will be used to calculate your monthly interest charge. Interest accrues every day on any unpaid balance, and the accrued interest becomes part of your total balance. Because your interest compounds, what you owe can grow quickly.
Find your APR in your credit card's terms and conditions (T&Cs)
If you're considering signing up for a particular credit card, it's a good idea to read the card's terms and conditions thoroughly. You can also refer to your existing cards' T&Cs for important information like purchase APR.
Your card's APR is listed near the top of the card's T&Cs.
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.
Find your APR by contacting your credit card issuer
You can contact your card issuer directly to get up-to-date rate information. For your existing credit cards, your issuer's phone number can be found on the card itself.
How to calculate the APR on your credit card
Credit card interest calculations rely on a five-step process. First, you break the APR into a daily periodic rate (DPR). Once you've done that, you determine the average daily balance on the card and multiply it by the DPR. These daily amounts are then added up for the month and that's the interest rate charge that's added to your monthly purchase amount.
We break it down here:
- Calculate your daily periodic rate (DPR)
The APR is given as an annual rate–but card issuers typically calculate the interest that you owe on a daily basis. To find this daily interest amount, they will divide the APR by 365 to generate the DPR.
So, if a card has an APR of 11.24%: divide 11.24% by 365. The resulting DPR is 0.0308%.
Note that some card issuers use 360 instead of 365, so it's important to check with your issuer to confirm their methodology.
- Determine your average daily balance
Another key component of interest calculations is your average daily balance, or the sum of your daily balances divided by the number of days in the month.
Calculating your average daily balance will be your most difficult math problem when calculating your interest, especially as many credit card statements do not provide your daily balances. Move backwards through your statement to see what the final balance was on each day of the month.
Let's say you start the month with a zero balance for a 30-day (one month) statement cycle.
On day one: you spend $200. On day 21 (20 days later) you spend another $200. That means your daily balance was $200 from day one to day 20 (20 days), and then $400 from day 21 to day 30 (10 days).
To find the total sum of every daily balance in that 30 days, you do the following:
($200 ✕ 20) + ($400 ✕ 10) = ($4000) + ($4000) = $8000.
To find your average daily balance, you divide that sum of $8000 by the number of days in your billing cycle as $8000/30, which gives you an average daily balance of $266.67.
- Apply the DPR to the average daily balance
To figure out how much you owe daily in interest, multiply the DPR by the average daily balance.
So in this case the DPR is 0.0308% (0.000308 in decimal form) ✕ $266.67 = $0.082, or 8.2 cents of daily interest per day.
- Combine your daily interest amounts into a monthly total
Multiply the daily interest amount (8.2 cents) by the number of days in the statement cycle (30 days).
30 ✕ $0.082 = $2.46 in monthly interest charges.
- Add what you owe in interest to your purchases for the month
Take that $2.46 and add it to your monthly purchase amount ($400 in this case) and the total balance at the end of the month is $402.46.
How to manage your credit card interest
Calculating your credit card interest is just the first step. By monitoring your APR and by aiming to pay off your balance as much as you can, you can pay much less in interest and improve your credit score at the same time. Of course, if you pay your balance in full within the specified grace period every month, you won't have to pay any interest on purchases. You may still be charged interest for other types of transactions; like when you use your card to get cash.
Keep your credit card interest at a healthy level by doing the following:
Determine whether your credit card APR is fixed or variable.
This will be indicated on your card statement, often as an (F) or a (V) in the rate table. A fixed rate stays the same from month to month (although card issuers can change the fixed rate with 45 days' notice or if you are 60 days past due on your minimum payments). The variable rate may change from month to month and is pegged to the prime rate: a reference rate used by many issuers.
Reference your statements for your running interest total.
Your card statements will show how much in interest (and fees) you have accrued year-to-date. Monitoring this figure helps you understand how much you're paying in credit card interest, without having to do the manual calculations described above.
Aim to pay your statement balance in full each month.
Put your credit card to work as a short-term interest-free loan by paying off what you owe at the end of each statement cycle. You will likely have a minimum of 21 days from the date the statement is mailed to pay off the balance before interest begins to accrue. If you want to pay your statement balance in full each month, you may want to consider signing up for that option through autopay, so that you won't forget to make a payment.
But when you can't pay in full, always try to pay more than the minimum balance due.
Your card statement or online account will detail the minimum amount due for each statement cycle. The more of your balance you pay each month, the less you will owe in interest.
Maintain your finances by checking and managing credit card APR
Understanding credit card APR helps you understand how credit card interest can accrue quickly and why it helps to regularly monitor your rate and your total balance.
As a next step, see if you qualify for a credit card with a lower purchase APR. If you find a lower rate credit card that also offers balance transfers, transfer the current balance from your higher-APR card, and start using extra cash to pay it down throughout the month.