Finance Charge

Unit 4: Credit Card Finance
Charges

What you need to know to be successful:
1)

How to calculate periodic finance rate (Daily and monthly)

2)

How to calculate finance fee using periodic fiance rate

How to calculate periodic finance rate (Daily and
monthly)

PERIOD FIANCE RATE: The rate at which
interest is calculated by taking the APR and
dividing it by 365 (daily periodic interest rate) or
12 (monthly periodic interest rate).

EX: Find the periodic finance rate rate if a credit card
advertises an APR of 21.85%

DAILY: 21.85% / 365 = 0.0006 (rounded to ten
thousandths)

MONTHLY: 21.85% / 12 = 0.0182 (rounded to ten
thousandths)

EXAMPLE # 2

1.What is the daily and monthly periodic
finance rate on an APR of 28.95%

DAILY: 0.0007

Monthly: 0.0241

2.What is the APR if the daily periodic rate is
0.0008

APR = 0.0008 x 365 = 29.2%

Multiple Choice

If I have an 18% APR, what is my monthly INTEREST RATE?

• 1.5%

• 12%

• 18%

• 2.5%

How to calculate finance fee using periodic
fiance rate

Once you know the periodic rate (daily or monthly), all
you have to do to calculate the interest charged is
multiply the rate by the balance.

INTEREST CHARGED = periodic rate x balance owed x
# of days or months

EX: How much interest will be paid if the
previous balance owed was $495.13 and
the APR is 26.38%? Use the daily and
monthly periodic finance rate. Assume a 31
day billing cycle.

SOLUTION

DAILY:

1.Find the periodic finance rate:

26.38% / 365 = 0.0007

2.Multiply the balance by the above rate and
# days in billing cycle:

0.0007 x $495.13 x 31= $10.71

Monthly

1.Find the periodic finance rate:

26.38% / 12 = 0.0220

2.Multiply the balance by the above rate and
# months you are looking for (this case 1)

0.0220 x $495.13 x 1 = $10.89

EX: How much interest will be paid if the previous
balance owed was $495.13 and the APR is 26.38%?
Use the daily and monthly periodic finance rate.
Assume a 31 day billing cycle.

Multiple Choice

Which rate would be used to find the interest charged on a credit card if the APR is 29.99%, balance owed is $7,534.89, and a 30 day billing cycle is used?

• MONTHLY PERIODIC RATE

• DAILY PERIODIC RATE

Multiple Choice

Which equation would be used to find the interest charged on a credit card if the APR is 29.99%, balance owed is $7,534.89, and a 31 day billing cycle is used?

• Interest = 0.0097 x $7,534.89 x 31

• Interest = 0.0097 x $7,534.89 x 12

• Interest = 0.2999 x 7,534.89 x 12

• Interest = 0.2999 x 7,534.89 x 31

Multiple Choice

Given a daily periodic rate of 0.05031%, calculate the daily interest charge if the average daily balance is $2,453.85 (Find the interest for 1 day)

• $123.45

• $1.23

• $14.81

• $450.60

Multiple Choice

Hannah did not pay her American Express credit card bill in full in May. Her June bill showed a finance charge, and she wants to see whether or not it is correct. The average daily balance is $16,325.72, and the APR is 19.99%. Find the finance charge for her June statement. (Use monthly periodic rate, for 1 month)

• $301.75

• $271.96

• $92.93

• $403.97

Multiple Choice

Assuming the APR on your credit card is​ 18% and your average daily balance this month was​ $10,000, what will your interest or finance charges for the month​ be? Use monthly periodic rate.

• $60

• $150

• ​$1.50

• $180

Multiple Choice

Mary’s average daily balance for last month was $1026.25. The finance charge was $15.36. What was the APR?

• 0.014%

• 19.6%

• 18%

• 14%