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Valued Member
Posts: 47
Registered: ‎03-17-2013
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How do they calculate interest?

[ Edited ]

I have a balance of nearly $1,748.96 and a 13.99% apr after the 10th of August. He said if I keep my balance until the 14th (statement close), my interest would be  $2.68 and I asked if I kept it hypothetically (said I am going to pay my minimum balance) tif i kept the balance until sept 14th (possibly my next statement close) how much would the interest be? He said $23 and some change...

 

I did 1,748.96x.1399 and I get $244.68...

 

Please help me figure this out...

 

edit: He also said my premium rate is 3.25%+10.74% I don't understand this either.



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Established Member
Posts: 16
Registered: ‎04-17-2013
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Re: How do they calculate interest?

The APR is the Annual Percentage Rate. So you take your 13.99% and divide that by 12 to get your monthly percentage rate of 1.17. You then multiply that by your balance of $1748.96 and you get $20.39.  This is how I understand interest to be calculated.  I may be wrong though...

Valued Contributor
Posts: 1,603
Registered: ‎09-15-2012
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Re: How do they calculate interest?

So interest can be calculated in a variety of ways, but many credit cards use the Average Daily Balance method. So you take the average of all the balances at the end of every day in the month and multiply that by your APR divided by 12 (to make it monthly). You probably won't get exactly the right amount that way, but something pretty close. Anyway, you'll need to read your T&C to know if this is the way your interest is calculated. What you did wrong in the example above is not divide interest by 12.

The 3.25 you stated is the current prime rate. Most credit cards are variable rate, meaning that as the index rate changes, the rate you pay changes with it. It looks like that card is tied to the WSJ Prime rate, and your rate is calculated by adding 10.74 to it. So if the prime rate goes up to 5%, then your CC interest rate will go up to 15.74%.

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New Member
Posts: 3
Registered: ‎03-26-2013
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Re: How do they calculate interest?

[ Edited ]

Average daily balance x interest rate / 365.25 x number of days = total interest.

 

In your example

 

$1,748.96 * .1399 / 365.25 * 4 = $2.67958 rounded up to $2.68

 

Or until Sep 14th

 

$1,748.96 * .1399 / 365.25 * 35 = $23.44635 rounded up to $23.45

Contributor
Posts: 205
Registered: ‎06-10-2013
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Re: How do they calculate interest?

Off topic a little... but does anyone remember when prime rate was 20.5%?...

Valued Member
Posts: 47
Registered: ‎03-17-2013
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Re: How do they calculate interest?

I think scsplayer has it figured out. For the second part he gave me $23.6? I believe, but it is likely because my balance changes on the 14th. Thank you everyone.

 

You mean prime rate was that high for everyone or just people with poorish credit?



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Contributor
Posts: 205
Registered: ‎06-10-2013
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Re: How do they calculate interest?

No for everyone.. back in 1980 something.. I think prime rate peaked at 21.5% or somewhere around there..

Super Contributor
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Registered: ‎02-27-2013
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Re: How do they calculate interest?

It just depends on the current market economics at that time. Many decades ago mortgage rates were ridiculously high too and that didn't stop people from getting mortgages either. It just meant they had to get a cheaper house given the market conditions.
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Posts: 27,207
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Re: How do they calculate interest?

Contributor
Posts: 205
Registered: ‎06-10-2013
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Re: How do they calculate interest?

The credit card market would certainly suffer if that rate ever skyrocketed that high again..

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