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How Is Interest Calculated on a Credit Card

Credit Card Interest Formula:

\[ Interest = Balance \times \left(\frac{APR}{365}\right) \times Days \]

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1. What is Credit Card Interest?

Credit card interest is the cost of borrowing money on your credit card. It's calculated based on your balance, annual percentage rate (APR), and the number of days in your billing cycle.

2. How Credit Card Interest is Calculated

The calculator uses the daily interest formula:

\[ Interest = Balance \times \left(\frac{APR}{365}\right) \times Days \]

Where:

Explanation: The APR is divided by 365 to get the daily rate, then multiplied by the balance and number of days to calculate total interest.

3. Understanding APR

Details: APR represents the annual cost of borrowing, including interest and fees. Credit cards often have different APRs for purchases, cash advances, and balance transfers.

4. Using the Calculator

Tips: Enter your current balance, APR percentage (without the % sign), and the number of days in your billing cycle (typically 28-31 days).

5. Frequently Asked Questions (FAQ)

Q1: When is credit card interest charged?
A: Interest is charged when you carry a balance past the grace period. Paying your full balance by the due date avoids interest.

Q2: How can I reduce credit card interest?
A: Pay your balance in full each month, negotiate a lower APR, or transfer balances to a lower-interest card.

Q3: Is APR the same as interest rate?
A: APR includes both interest rate and fees, giving a more complete picture of borrowing costs.

Q4: Why divide by 365 days?
A: This converts the annual rate to a daily periodic rate for more precise daily interest calculations.

Q5: Does this calculator work for compound interest?
A: This shows simple daily interest. Actual credit card interest may compound daily in some cases.

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