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Because credit card issuers need contracts to be enforceable, card agreements consumers sign are often dense and difficult to fully understand. Terms regarding interest can be especially difficult to parse since interest is typically expressed as an annual percentage rate (APR) and requires use of polynomial algebra to properly calculate. To avoid triggering traumatic memories from math class, use our credit card interest calculator to help you understand how much interest a carried balance will accrue or how much you might owe if you don’t pay your credit card bills in a timely manner.

How Do I Calculate Credit Card Interest?

Calculating your credit card interest using the average daily balance method requires dividing your annual percentage rate by 365 to determine the daily interest rate. Every day you carry a balance, this daily rate applies to the balance from the day before. The higher the APR, the larger the amount of interest accumulated daily.

Unless you’re calculating interest on a balance transfer or cash advance, the APR used is typically your card’s standard APR and can be found immediately in the pop-up window when you click “apply” on a credit card website or within your cardholder agreement after you are approved.

How Does Credit Card Interest Work?

Credit card interest typically accrues when you carry a balance on a card. Paying less than the entire balance before a statement due date means you’ll carry any remaining balance. Interest will accrue on a carried balance. If you pay off your balance in full by the end of the month or billing period, you will not accrue interest on purchases.

Interest is represented by an annual percentage rate or APR. APRs may be fixed or variable depending on whether or not they’re tied to the prime rate, so the actual rate may change. An APR is annual but interest compounds daily, so to find the actual rate applied to your balance on a daily basis, divide the APR by 365 days. This daily rate is applied to your balance every day the balance remains unpaid, which means your balance will grow exponentially, as every day’s balance will be higher than the day before.

Usually, card issuers provide a grace period to help you avoid accruing interest. So long as you pay your bill in full before the end of the billing cycle, you won’t accrue interest on your balance. Though grace periods do not apply to cash advances, you can lose a grace period if you carry a balance. Cards typically requires on-time, in-full payments to recover the grace period and be able to avoid interest again.

What Is the Average Credit Card Interest Rate?

In March 2024, the Bank of Canada (BoC) kept its policy interest rate at 5.0%. The average credit card interest rate in 2023 was 19.99 to 20.99%. Credit card rates shift for individual consumers based on a number of factors, including creditworthiness. Typically, the lower your credit rating, the higher the interest rate you’ll be offered by an issuer for the same card.

Frequently Asked Questions (FAQs)

When do you pay interest on a credit card?

A balance on a card accrues interest when carried. In other words, if you don’t pay your credit card bill in full by the end of the month or billing period, any balance remaining will accrue interest at the rate determined by the card’s terms. This interest will be added to the balance and the account holder will be required to pay it off before closing the account.

How do I lower my credit card interest rate?

If you’ve demonstrated responsible spending and credit habits, a lender may be willing to lower the interest rate on an existing card. There’s no guarantee a card issuer will lower your interest rate, but if you’re worried about or planning to carry a balance (we never recommend carrying a balance if it can be avoided), you can contact your issuer about a rate reduction. If a rate reduction isn’t possible and you need another solution, explore transferring a balance to a new card with a lower APR and/or an introductory APR offer.

What are the best low-interest credit cards?

The best low-interest credit cards offer APRs below the average. Most also don’t charge annual or other maintenance fees and provide additional useful benefits.

Is credit card interest tax deductible?

Interest incurred on credit cards for personal expenses is not deductible. Interest on certain small business expenses may be deductible, but be sure to consult your tax advisor.

How do I avoid interest on my credit cards?

To avoid credit card interest, pay all credit card bills in full and on time. Card issuers typically extend a grace period to allow you to avoid interest by paying on time, but this opportunity to avoid interest on new purchases goes away the moment you carry a balance—any new purchases will usually begin to accrue interest the day the purchase is made. Recovering a grace period following a carried balance typically requires a series of in-full, on-time payments.

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