How to Calculate Credit Card Interest

For calculating  the interest credit card interest, you should learn simple and compound interest calculation. If you buy anything with credit card, it means you are buying with your accepted loan money. This loan is accepted by the bank who gave this credit card facility. So, credit card interest is the interest on your taken loan. You have to pay compound interest. It means, you have to pay interested on your payable interest also.

It is on your agreement, how will interest be compounded. Interest may be compounded every day, monthly, quarterly. For example, you have to buy something online through using your credit card. You have paid to the vendor $ 1000. It is the $ 1000 loan to you. If next day you have bought $ 2000 goods through credit card, it means first day's buying (loan + interest) value. If you will pay end of the money. Interest will charge every day on buying value plus interest which is pay at the end of the day. Computer software can calculate this interest so easily and fastly. If you want to calculate it manually, following are its steps:


1. Find the Annual Interest Rate 


Whether interest is compounded daily basis or monthly basis, you  have to find the annual interest rate from your original credit card agreement document. On this rate, you can calculate the amount of credit card interest which you have to pay every day or every month up-to the billing cycle. In technically, we say it APR (Annual percentage Rate).


2. Calculate Average Daily Balance 

Example : a) 


Day 1: You begin the cycle with a $1,000 balance on your credit card
Day 5: You make a new purchase of $300
Day 10: You make a payment of $50
This would mean that for days 1 thru 4, your daily balance was $1,000. So we would add those up ($1,000 + $1,000 + $1,000 + $1,000 = $4,000).
Then on day 5 you made a purchase of $300 and that means your new balance is $1,300. So for days 5 through 9 your balance would be $1,300 ($1,300 + $1,300 + $1,300 + $1,300 + $1,300 = $6,500).
Now we’re on day 10 when you made a $50 payment. Your new daily balance is $1,250 ($1,300 – $50). Since you have no other activity for the rest of the cycle, that amount would be your daily balance for days 10 through 30 (remember that’s including day 10, so it’s 21 total. $1,250 x 21 = $26,250).
The final calculation – We add up those three totals: $4,000 + $6,500 + $26,250 = $36,750. Now divide that amount by 30 and we get $1,225 as your average daily balance.
(Reference of example is from Credit Card Forum)
Example : b) 

You started the billing cycle with a balance of $100. On Day 4, you made a $100 purchase. On Day 20, a $25 payment was credited to your account. Your daily balance during the billing cycle was:
Day 1 – 3: $100
Day 4 – 20: $200 ($100 purchase)
Day 20 – 25: $175 ($25 credit)

To calculate your average daily balance you must total your balance from each day in the billing cycle and divide by the number of days in the cycle.
(Day 1 Balance + Day 2 Balance + Day 3 Balance…) / number of days in billing cycle
For example, if your total balance in billing cycle is $ 4575, then
$4575 / 25 = $183 

(Reference of example is from About.com's Debt Management Section)


3. Calculate the Credit Card Interest


ADB X APR/100 X number of days revolved/365


Let’s say your APR is 12% and your billing cycle is 25 days long.

$183 * .12 * 25 / 365 = $1.50

COMMENTS

Comments on this Website
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: How to Calculate Credit Card Interest
How to Calculate Credit Card Interest
Accounting Education
http://www.svtuition.org/2013/10/how-to-calculate-credit-card-interest.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2013/10/how-to-calculate-credit-card-interest.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock