How is interest rates calcuulted on credit cards?

NOt in your favor that%26#039;s for sure.

Old debt, plus

new debt, times the Interest rate, compounded DAILY until payment.

It is a somewhat complicated process to do by hand, but trust me, their computers have it DOWN. And you pay dearly for carrying over balances or being late.

How is interest rates calcuulted on credit cards?

INTEREST RATES are determined by your contract with the credit card company. It could be fixed or it could be variable (i.e. it depends on an index like prime rate plus a margin)

FINANCE CHARGES are calculated differently. The DAILY PERIODIC RATE which is based on the ANNUAL PERCENTAGE RATE (APR) is applied to your outstanding balance.

So... let%26#039;s say your APR is 10% (or 0.10). Your DAILY PERIODIC RATE is 0.10 divided by 365 days... Some credit card companies divide it by 360 days. Let%26#039;s assume 365. So your daily periodic rate is 0.0002740.

Let%26#039;s assume at the end of January, you had an outstanding balance of $1,000.00.

Your credit agreement gives you a 15-day grace period until February 15. You don%26#039;t pay your balance until January 25. That%26#039;s 10 days for which you have an outstanding balance.

So the credit card company would take your DAILY PERIODIC RATE (0.0002740)... multiply it by the outstanding balance ($1,000) and multiply that by 10 days. Your finance charge would be $2.74