How Credit Card Interest Is Calculated

How is credit card interest calculated? That is a question that many people ask when they go to the bank and apply for a new credit card. When the clerk calculates how much you will be charged for your new card, you may be shocked. For some people, this may come as a shock. What you may not know is how much of a credit card interest you will pay once the introductory period has ended and your interest rate is back to its standard level. It is important to understand how this will affect your credit-card APR or Annual Percentage Rate.

In order to understand how credit card interest is calculated, you should first look at how the credit card company measures your risk. If you have no debt, then they consider you to be very low risk. They will charge you a lower APR, which means that you will pay a lower interest rate overall on the entire loan balance. This does mean, however, that you will be responsible for any interest that you do not pay off in time and that you will ultimately pay off the entire balance at the end of the term.

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With a credit card balance remains unpaid over the course of a month, the credit card company will calculate your APR by adding your outstanding balance to your current balance, your previous monthly payment amount, and your annual percentage rate. Their calculation will include all of the interest that you have not paid, and they will also add in a penalty for you not paying the minimum monthly payment. Once they have all of these numbers, your APR will be determined.

Now, you must be wondering how you will know if you still have enough money to pay the next month's minimum payment. If you find out that you do not, then you can do one of two things. You can keep going with the same payment you had been making which will get you to the end of the month with minimum balance payment. Or, you can negotiate with the credit card company and tell them that if they will reduce your payment or increase it to something better than the amount you currently pay then you will be willing to pay that amount in full at the end of the month. When they do this, you will no longer have to pay the APR and will have the opportunity to negotiate with them to pay a lower amount or even completely eliminate it. Although these methods will take some skill, if you are up against a stubborn credit card company, chances are good that they will simply increase your interest rate and raise your monthly payment amount and this is when you will need a bit of negotiating skills.

How Credit Card Interest Is Calculated – The final piece of information that you will need to understand when figuring out how credit card interest is calculated is the APR. The Annual Percentage Rate is what tells your credit card issuer how much interest they will charge you on your balance each month once the balance is due. The APR is usually low but if it is too high for your budget, then simply reduce your payment until the APR becomes more manageable. If you are able to do this, then you may consider getting another credit card from a different credit card issuer. The important thing to remember is that you are charged interest on purchases you make and any amount you pay over time towards a loan that is associated with that purchase.

What To Do If You Have Paid Off The Balance – If you have paid off the entire interest on your account, you may still owe an outstanding balance on the account. If this is the case, your interest rate may not have changed but your payment will likely have since. If you want to know how credit card issuers calculate their interest rates, you will simply need to call the customer service number on your card and ask them. They will likely ask you how you paid off your balance and will then calculate the exact amount you will owe based on the amount of your unpaid balance as well as the amount of interest you were previously paying. If they are not able to provide you with their calculations, simply ask them to contact the credit card issuer you owe money to in order to receive an updated calculation.

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