topic Re: How to calculate the "real" interest rate? in Credit Cards

How to calculate the "real" interest rate?

Tiki2 — Sat, 02 Aug 2025 17:57:08 GMT

I have a card with a balance of approx. $16,000 that I am trying to pay off but despite large payments it is barely moving. I am trying to figure out if this card actually has a higher interest than stated on the bill (interest capitalization??) and if so, how to compute the "real" interest. The cc company has split the balance into the following 3 categories:

11.24 ($9500)

16.24 ($3,400)

21.24 (3000)

All of this, however, is compounded daily so that the highest interest has barely moved at all and the middle interest amount has actually RISEN through all of these payments. I am trying to get the real interest rate to know whether a consolidation loan is worth it to get rid of this card, or at least find out what the real minimum payment should be to decrease all three categories each month until its paid off.

Hope this isn't too confusing & thanks!

Re: How to calculate the "real" interest rate?

FicoMike0 — Sat, 02 Aug 2025 18:31:39 GMT

Is the identity of the lender a secret?

I never heard of a three tiered interest rate. What is the min payment? Does the statement disclose how long the payoff is at the min?

I think the answer to your question is, can you get a $16,000 loan at less than 11.24% ?

Re: How to calculate the "real" interest rate?

Tiki2 — Sat, 02 Aug 2025 18:41:28 GMT

This is a Citi card I've had for a very long time - no lates or cash advances, ever. The 3 "tiers" were only added in the last year or so, and I did not realize the balance was actually climbing some months. The minimum payment is always between $330.00 and $375.00 but I always pay more.

Re: How to calculate the "real" interest rate?

JoeRockhead — Sat, 02 Aug 2025 19:45:09 GMT

@FicoMike0 wrote:
Is the identity of the lender a secret?
I never heard of a three tiered interest rate. What is the min payment? Does the statement disclose how long the payoff is at the min?
I think the answer to your question is, can you get a $16,000 loan at less than 11.24% ?

It's not all that uncommon for lenders to have different interest rates for different types of spend, or purchases... or even have different tiers for account holders based on their credit profile (synchrony does this).

As for the OP, there should be a breakdown on your statements as to how they are calculating the interest they're charging. They could also tell you how they calculate what they're charging interest on such as average daily balance, etc... have you called them to ask?

You could also call them to ask for an interest rate reduction.

Re: How to calculate the "real" interest rate?

FicoMike0 — Sat, 02 Aug 2025 20:00:58 GMT

You could also call them to ask for an interest rate reduction.

@JoeRockhead

I wish I'd thought of that!

Re: How to calculate the "real" interest rate?

Tiki2 — Sat, 02 Aug 2025 20:14:55 GMT

I think I will try that. Thanks!

Re: How to calculate the "real" interest rate?

Kforce — Sat, 02 Aug 2025 21:24:39 GMT

Month's interest will depend on which formula institution uses.

Some use real days every month, others average month's days, others 30 day per month.

It also varies depending on 365 day's per year, 360 a year or real days that year.

Interest = (Balance * Daily * Days)

9500 * (0.1124/365) * 31 = 90.69

9500 * (0.1124/360) * 31 = 91.95

To work backwards: "Calc rate from numbers"

( ( ( ( Interest Paid / Days_Month ) / Balance ) * Days_Yr ) * 100 ) = Yearly Rate (Not Decimal)

( ( ( ( 90.69 / 31 ) / 9500 ) * 365 ) * 100 )= 11.24

PS: Highest Interest paid is with 360 day's year and using real calendar day's each month.

Your interest numbers should be ~(92+48+55) = 195/mo

( ( ( ( 195 / 31 ) / 15900 ) * 360 ) * 100 ) = 14.24 (Average )

Re: How to calculate the "real" interest rate?

mgood — Sat, 02 Aug 2025 23:39:04 GMT

@FicoMike0 wrote:

I think the answer to your question is, can you get a $16,000 loan at less than 11.24% ?

I like this approach.

If the answer is no, and Citi won't give you an interest rate reduction, we're back to square one though.

Re: How to calculate the "real" interest rate?

Kforce — Sun, 03 Aug 2025 01:44:37 GMT

@Tiki2 wrote:
I did not realize the balance was actually climbing some months.
Paying $330-$375 or more, you should not see a balance increase on the 16k unless you are using the card and not paying all the extra spend you are putting on the card every month.

The minimum payment is always between $330.00 and $375.00 but I always pay more.
The minimum payment should be falling every month.
Payment moving $45 equates to an ~$2000 balance shift
Is this card a daily use ?

Re: How to calculate the "real" interest rate?

zerofire — Sun, 03 Aug 2025 11:50:14 GMT

Oh dang. That is quite a mess. There is also another thing to consider. Anything you pay that is the minimum will be applied to your lowest APR. Only stuff that is more than the minimum will be added against the highest APR. That middle APR will definitely be expanding like a saucer if you cannot find a way to pay lots of extra. I recommend a debt consolidation loan if you can get one. I also hope you are not adding charges to this account as there is no grace period and interest on new charges would start immediately.

Re: How to calculate the "real" interest rate?

Tiki2 — Sun, 03 Aug 2025 13:39:32 GMT

No, I have not actually used this card in probably at least 18 months or so because I received a letter that indicated an interest rate of 29+% would be used for "new charges". Again, no lates, no cash advances, always pay more than the minimum, I was just stupid enough to carry a balance for a long time. Since I was getting the paperless statements I never paid enough attention to catch on to the rising balances when they occurred. Lesson learned!

Re: How to calculate the "real" interest rate?

Tiki2 — Sun, 03 Aug 2025 13:42:52 GMT

Yes, this is exactly what is happening. I have been approved for a loan at at 11.99% and am going to take it and be done with this "gem" of a card. Thank you all for the help!!

Re: How to calculate the "real" interest rate?

Tiki2 — Sun, 03 Aug 2025 13:44:09 GMT

Thank you very much for this!

Re: How to calculate the "real" interest rate?

youngandcreditwrthy — Mon, 04 Aug 2025 14:36:21 GMT

At one point, universal default was banned, but since that definition has never been defined in court or set by precedent, I suppose banks still do it..

waht most likely happened is that as your balance climbed, they increased the risk, probably sent you a dumb letter you ignored, and you kept charging..

and now you have three different balanaces at three different rates.

I have a synchrony card that did this.. I think carecredit.. I had a 1000 balance out of 12,000 CL and it was 80% 0% interest, and I always pay it off before interest kicks in, but due tend to pay only a little more than min during the promo period.

I think all new carecredit accounts get 32.99 or so, but mine was 29.99 and after dec of last year they raised everything (aside fromthe promos) to the 32.99 rate, so I somehow still have a little balance at the 32.99 rate, but I am in the process of trying to decide (because it's only a couple hundred bucks and like the one card I pay any interest on, might be one other, but I mostly pay if everything.

On your statement, there should be a breakdown of the "daily periodic rate"

I would also go back to your OG card agreement and see if they engage in "triple cycle billing". In 2010 when the CARD Act was passed, banks were prohibited from engaging in "double cycle billing". This is where they take the "average of your two most recent billing statements" and charge interest based on that.. which is why when you pay some accounts off in full sometimes, it takes two months to completely zero out the account and start fresh so that you can charge, pif, use the grace period, and pay zero interest.

Amex is one of the worst offenders. One time I let a balance roll by a DAY, and got charged like $58 in interest I think it was because they had been banned from Double Cycle Billing so they upped their game to triple cycle billing. made me so angry but tricks and traps is how they play.

Look for a BT card if you can too. because if you can get a BT card even with a 5k limit, that will relieve a significant amount of pressure on the interest part. or if your fico scores are 680+, try Discover, they're new account sensitive IME, but they're generous and they seem to try and match your limit to what you need BT wise.

Re: How to calculate the "real" interest rate?

Tiki2 — Mon, 04 Aug 2025 22:39:33 GMT

Thank you for that explanation. The statement says it is calculated by the "daily balance method".

Re: How to calculate the "real" interest rate?

Yasselife — Thu, 07 Aug 2025 18:27:02 GMT

@Tiki2 wrote:
I have a card with a balance of approx. $16,000 that I am trying to pay off but despite large payments it is barely moving. I am trying to figure out if this card actually has a higher interest than stated on the bill (interest capitalization??) and if so, how to compute the "real" interest. The cc company has split the balance into the following 3 categories:
11.24 ($9500)
16.24 ($3,400)
21.24 (3000)
All of this, however, is compounded daily so that the highest interest has barely moved at all and the middle interest amount has actually RISEN through all of these payments. I am trying to get the real interest rate to know whether a consolidation loan is worth it to get rid of this card, or at least find out what the real minimum payment should be to decrease all three categories each month until its paid off.
Hope this isn't too confusing & thanks!

You explained the situation really well; it’s not confusing at all, and it’s a smart question to ask. When credit card companies split your balance into multiple APR tiers like this, they usually apply your payments to the lowest interest rate first (unless you’re paying above the minimum); that’s why the higher-interest balances barely move.

To get a rough idea of your effective interest rate, you can calculate a weighted average based on the balances and APRs. Using your numbers:

(9500 × 11.24%) = 1,067.80

(3400 × 16.24%) = 552.16

(3000 × 21.24%) = 637.20

Total interest = $2,257.16

Total balance = $16,000

Weighted average interest rate ≈ (2,257.16 ÷ 16,000) = 14.11%

So even though your highest APR is 21.24%, your overall effective rate is around 14.1%. However, because credit card companies often apply payments in ways that delay attacking the highest-interest portion, the practical cost of carrying the debt can feel higher.

You’re not wrong to feel like your payments aren’t making much of a dent; compounding and payment allocation policies can make it feel like you’re running in place.

If you can qualify for a personal loan or 0% balance transfer card, it might absolutely be worth it; especially if your goal is to pay down this balance aggressively. At the very least, now you know how to calculate the “real” rate. You’re asking the right questions; keep at it!

Re: How to calculate the "real" interest rate?

Tiki2 — Thu, 07 Aug 2025 22:43:20 GMT

Thank you so much for that answer! That made my day because the interest rate I consolidated to is under that rate. I so wish I would have caught on long ago, but never again anyway!!