What is a variable interest rate on a credit card?

To find the interest rate on your credit card, look at your cardmember agreement and your monthly credit card statements. Your interest rate will be there in the form of an annual percentage rate (APR). But as “annual” implies, an APR is the cumulative interest rate for a whole year, which isn’t all that helpful for calculating actual interest charges from day to day or month to month.… read full answer

You can figure your daily interest rate – or daily periodic rate – by dividing your APR by 365 (days in a year) because credit card interest compounds daily. (It’s worth noting that some card issuers may divide by 360 rather than 365). This calculation will give you the actual daily rate at which you accrue interest on a card. If your APR is 19.99%, your daily periodic rate would be 0.0547%.

The terms APR and interest rate are often used interchangeably. For general purposes, they express the same idea, though you’ll get a much better sense of your actual “interest rate” by using the daily periodic rate.

It’s worth noting that most credit card rates change (indicated in terms by a V next to your APR). So if the so-called prime rate that credit card APRs are tied to goes up, your rate will rise, too. A credit card agreement may note that the account’s APR is the prime rate plus a certain fixed percentage. Or, your rate might rise to a penalty APR (also found in credit card terms) if you miss a payment. Your card issuer must notify you of a rate change 45 days before it takes effect, unless you’re 60 days or more past-due on payment.

Though it’s good practice to keep an eye on your APR, interest rates don’t matter if you pay your credit card bill in full every month. If you aim to pay no interest, you won’t have to worry about crunching these numbers.

Variable rates are tied to and fluctuate with the Prime Rate, which is the interest rate banks charge their most creditworthy customers (usually large corporations). The Prime Rate, in turn, changes based on adjustments to the Federal Funds Rate. This is the interest rate that applies to the money that banks lend to one another, which is held at the Federal Reserve.… read full answer

In this card’s case, the interest rate is variable, which means that if the Prime Rate goes up 1%, your credit card rate will also go up 1%. You can find a detailed breakdown of the types of interest rates here: /edu/cc/what-is-a-purchase-apr/25513#fixed-vs-variable-rates. Hope this helps!

The easiest way to determine how much interest you will pay on a credit card is to use WalletHub’s credit card payoff calculator. It’s a free tool that allows you to input the amount of debt you have (or will have) and your interest rate to get a payoff plan and a cost estimate.… read full answer

You can set a payoff date, and we’ll tell you what monthly payments you’ll need to make. Or you can set a fixed monthly payment, and we’ll tell you how long it will take to pay off. We’ll also tell you the total amount of interest you can expect to pay and even which credit cards can save you the most money.

Alternatively, you can get a sense of how much interest you’ll pay by crunching the numbers yourself.

How to Calculate Credit Card Interest Charges

1. Find your credit card’s APR

Your credit card’s APR will be listed in your cardmember agreement and on your monthly credit card statements.

2. Divide your APR by 365

An APR reflects the annual cost of borrowing, but credit card charges are assessed daily. Dividing by the number of days in a year gives you the daily interest rate – or daily periodic rate – for your credit card.

3. Multiply the daily interest rate by your average daily balance

Your average daily balance is the sum of your balances for each day in the billing period divided by the number of days in the billing period.

4. Multiply the resulting amount by the number of days in the billing period

When this calculation is done, you will have the interest charges due for the billing period. Just bear in mind that some details do vary by credit card company.

Whether you use WalletHub’s calculator or calculate credit card interest charges by hand, you should first understand the basics of how credit card interest works. We’ll highlight some key points below.

Key Things to Know About How Much Interest You’ll Pay on Your Credit Card

• If you pay off your balance in full by your due date, you won’t owe any interest.
• If you carry a balance from month to month, the interest you’ll owe depends on your Annual Percentage Rate (APR). That shows how much interest you’d pay in a year. But since credit card interest gets charged daily, your card’s interest rate is its APR divided by 365.
• Credit card interest compounds daily, which means the interest rate applies to your whole balance at the end of each day, including unpaid interest charges from previous days.
• The average APR among new credit card offers is 18.04%. But credit card APRs vary widely based on the applicant’s credit standing.
• Nearly all credit card APRs are variable, as opposed to fixed, meaning they’re based on a particular benchmark interest rate. This usually is the prime rate, which banks use when lending to each other.
• Many cards offer lower introductory APRs on purchases and balance transfers for a limited time, often starting at 0%. Once the introductory period ends, the APR will change to the normal rate.

There’s no way to tell you how much interest you’ll owe without knowing your card’s balance and APR as well as the monthly payment you can afford. But if you plug that info into WalletHub’s calculator, you’ll have your answer in no time.