Credit Card Interest Calculator

Credit card interest is quoted as an annual percentage rate but charged daily. Issuers divide the APR by 365 to obtain a daily periodic rate, apply it to the average daily balance across the billing cycle, and post the result at statement close. An APR of 21.99 percent is a daily rate of about 0.0602 percent, so an 8,000 dollar balance accrues roughly 4.82 dollars per day and about 145 dollars in a 30 day cycle. The monthly approximation used in most payoff models, balance times APR divided by 12, tracks this closely. Because posted interest is added to the balance and itself earns interest the next cycle, the effective annual rate of (1 plus APR divided by 12) raised to the twelfth power minus 1 always exceeds the stated APR, turning 21.99 percent nominal into roughly 24.3 percent effective. A grace period, generally 21 to 25 days between statement close and the due date, eliminates interest on new purchases only when the previous statement balance was paid in full. Once a balance revolves the grace period lapses and new purchases begin accruing from the transaction date. Cash advances and most balance transfers never carry a grace period at all. The model assumes a constant APR, no new charges, and no fees; a penalty APR triggered by a payment more than 60 days late can raise the rate to about 29.99 percent and change the arithmetic substantially.

Interest disclosure on revolving credit was standardized by the Truth in Lending Act, signed in 1968 and implemented by the Federal Reserve as Regulation Z in 1969. Before that, finance charges were commonly advertised as a monthly rate such as 1.5 percent, which understated the annual cost for consumers who did not annualize it. The Act required a single uniform annual percentage rate figure and prescribed how the balance subject to finance charge must be disclosed, which is why the average daily balance method still appears on statements today. The rates themselves were freed by the Supreme Court ruling in Marquette National Bank v. First of Omaha Service Corp. in 1978, which allowed a national bank to charge its home state rate to borrowers anywhere. South Dakota removed its usury cap in 1980 and Delaware followed in 1981, and major issuers moved card operations there. The Credit CARD Act of 2009 added the protections that shape modern statements: it restricted rate increases on existing balances, required payments above the minimum to be applied to the highest-rate balance first, and mandated a minimum payment warning box showing years to payoff and total interest at the minimum alongside the payment needed to clear the balance within 36 months.