Calculating Credit Card Interest

Calculating Credit Card Interest

By Alice Keeler

This lesson in intentionally simplified

Actual credit card interest is complex to calculate. So we are going to go for big idea and call it close enough for this lesson.

Percent = Per Cent

% = divide 100​

Convert the word percent into math words.

13% of 40

of means times (usually)

13 divide 100 times 40​

Converting the % and of to math words....

Divide the rate by 12 to get the MONTHLY rate.

Loan interest is per YEAR

APR = Annual Percentage Rage​

Divide the rate by 365 to get the DAILY rate

Credit card interest is calculated DAILY

So a 17.99% APR is ANNUALLY 17.99%

This is 17.99 ÷ 100 ÷ 12 for the MONTHLY rate

​This is 17.99 ÷ 100 ÷ 365 for the DAILY rate

This is overly simplified!!! There is a formula to calculate the interest based on how often it is compounded.

Compounded means how often you calculate the interest

Credit cards compound daily

Multiple Choice

If your credit card balance is $1750 with an APR of 18.99%. How much interest will you pay TODAY?

• $0.91

• $27.69

• $3987.90

• $91

$562 balance with a $7.99% APR is

​

562 x 7.99 ÷ 100 ÷ 12 = $3.74​

Divide the APR by 12

If you ASSUME your credit card compounds monthly (which it does not)

Monthly Interest

Overly simplified!!!

Interest paid for the month!

Go Backwards

What if you know the amount

​

The monthly interest paid on a $5300 balance is $79.46​.

​

balance x interest rate ÷ 12 = interest​

​

5300 x interest rate ÷ 12 = 79.46​

solve the algebra problem

5300 x interest rate ÷ 12 = 79.46​

Solve with algebra

on the left you divide by 12... so on the right you multiply by 12.

​

Multiply the 79.46 by 12 to see how much interest you pay in a YEAR not just this month.

5300 x interest rate = 953.52

Solve with algebra

Divide both sides by 5300 ​

​

interest rate = 953.52 ÷ 5300

interest rate = 0.1799

Multiply by 100 to get the percentage = 17.99%​

Multiple Choice

The monthly interest paid on a $6100 balance is $101.62. What is the interest rate (APR)?

• 16.7%

• 1.7%

• 19.99%

• 20%