How do credit card companies calculate your Interest?

A few key terms to understand:

  • APR (Annual Percentage Rate): This is the yearly interest rate that will be applied to your balance, typically shown as a percentage like 29.99%.
  • Statement balance: The total amount you owe at the conclusion of the last billing cycle.
  • Daily interest rate: The APR calculated on a daily basis.

Example: When you do not pay off your Statement balance:

  1. You charged a total of $1,200 in a billing cycle of 30 days.
  2. Your daily interest rate is 29.99% / 365 = 0.0822%
  3. Your interest charge would be:
    $1,200 x 0.0822% x 30 days = $29.58

Tips to avoid high-interest rates.

  • Always pay your statement balance in full before the Payment due date whenever possible.
  • Pay more than the recommended Minimum Payment Amount.
  • Make sure all your credit cards have a “Grace Period.”
  • Any late payment will trigger the highest interest rate plus fees.
  • Any Promotional rates will no longer be applied if payments are late or not paid in full.

Here are examples of how Chase charges interest on their credit cards and a more in-depth article on how interest is charged based on daily balance.

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