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New Contributor

## How do they calculate interest?

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...

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

Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
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Message 1 of 10
9 REPLIES
Established Member

## 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...

Message 2 of 10
Valued Contributor

## 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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Message 3 of 10
New Member

## Re: How do they calculate interest?

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

\$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

Message 4 of 10
Contributor

## Re: How do they calculate interest?

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

Message 5 of 10
New Contributor

## 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?

Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
Current Score: 03/27/2013 682 EQ 01
Goal Score: 850 all three FICO scores, 900 Vantage score, max insurance scores, etc.

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Message 6 of 10
Contributor

## 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..

Message 7 of 10
Super Contributor

## 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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Message 8 of 10
Moderator Emerita

## Re: How do they calculate interest?

Sad to say I remember that rate!
Message 9 of 10
Highlighted
Contributor

## Re: How do they calculate interest?

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

Message 10 of 10