If you carry a balance on your credit card, you'll owe a monthly interest payment based on your annual percentage rate. To calculate your monthly interest payment, convert your APR to a daily rate, find your average account balance and multiply these figures by the number of days in the month.
Identify Your APR
Your credit card agreement may list several APR numbers. Many cards offer a promotional APR for the first six months or year. This promotional APR may be as low as zero percent. After this time frame expires, you'll convert to a regular APR, which may be 10 percent, 15 percent or even 20 percent. Variable APRs change periodically based on a reference index like the U.S. prime rate. If you have a variable rate, log onto your online account or contact your credit card company to determine your current rate.
Calculate Your Daily Percentage Rate
To calculate your monthly interest payment, you'll need to convert your annual percentage rate to a daily percentage rate. To do this, divide your APR by 365. For example, if your credit card provider charges an APR of 13 percent, your daily interest rate is 0.036 percent.
Determine Your Average Daily Balance
Bank of America explains that your interest charges are based on your average daily credit card balance for the month. The simplest way to find your daily account balance is to add up your daily account balance for each day and divide it by the number of days in the month. For example, if there were 30 days in the month and your balance was $700 for 15 of those days and $800 for the remaining 15, the sum of your daily balances is $22,500 ($10,500 for the 15 days at $700 plus $12,000 for the 15 days at $800). Divide $22,500 by the 30 days in the month to find your average daily balance -- $750.
Calculate Your Monthly Interest Payment
To find your monthly interest payment, multiply your daily percentage rate by your daily balance and the number of days in the month. In this example, the monthly interest payment would be 0.036 percent -- numerically, that's 0.00036 -- multiplied by $750 multiplied by 30, for a total of $8.
Figure Your New Account Balance
Any payment you make is applied first to interest charges and then to account principal. In this example, the first $8 of your payment will go towards interest charges. For example, if you made a $50 payment, your principal balance would only be reduced by $42. If your account balance at the end of the month was $800, that means your new account balance would be $800 minus $42, or $758.
- BankRate.com: Six Facts About Credit Card APR
- Quicken. "What Is a Periodic Interest Rate?" Accessed Jan. 16, 2020.
- Metro Credit Union. "How Loan Amortization Works." Accessed Jan. 16, 2020.
- Consumer Financial Protection Bureau. "What Is the Difference Between a Mortgage Interest Rate and an APR?" Accessed Jan. 16, 2020.
- Discover. "How Does My Credit Card Interest Work?" Accessed Jan. 16, 2020.
- Ally. "APY, APR, and Interest Rates: What You Need to Know and the One Thing You Don’t Want to Overlook." Accessed Jan. 16, 2020.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.