There are various things a client must think about Credit Card interest calculation so that he doesn’t need to face any debt traps in his life.
Most of the Credit Card users don’t even know the process of how various financial institutions put interest on their credit. Suppose you have a credit card and it has an annual percentage rate of 14%, it doesn’t mean that they will charge 14% interest from you once a year.
The interest rate all depends upon how effectively and professionally you manage your account. Your interest rate could be higher, or it could be lower, and sometimes, you may also see that it could be even 0%.
Do you know why this happens? The interest rate that is charged on your credit card is generally based upon the daily basis cycle, rather than annually. It is only chargeable when you carry debt from one month to the next month; the interest is charged on the debt amount.
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If you are curious to know the procedure of calculating the Credit Card Interest, then you are required to follow the below–mentioned easy peasy three steps.
So, let’s start with our steps;
1. Convert Annual Rate to Daily Rate
You must see in your statement that your interest rate has been charging on an annual basis, which is known as annual percentage rate or APR, but the thing is you need to calculate your interest on a daily basis as we know that Interest is to be charged on a regular basis only. Thus, you have to convert that APR rate to Daily rate.
What you all need to do is divide it by 365 to get the interest rate on a daily basis. The result which you will get after following this is commonly known as the Daily Periodic rate or Periodic Interest Rate.
2. Analyse your Average Daily Balance
Your Statement will disclose to you which days are incorporated into the charging time frame. Your advantage charge relies upon your adjust on every one of those days. You begin with your unpaid adjust — the sum persisted from the earlier month. When you make a buy, the change goes up; when you make an instalment, it goes down. Utilize the exchange data on your statement; experience the charging time frame step by step, and record every day adjust or balance you can say.
Once you have that done including all day by day adjusts or balances, separate by the number of days in the charging time frame; the outcome is your regular day by day balance.
3. Set up Everything Together
The last advance is to increase your normal day by day balance by your daily rate, and after that, duplicate that outcome by the number of days in the charging time frame.
Contingent upon whether your issuer compounds interest every day or month to month, your real interest charge may contrast somewhat from this figured sum. Compounding is the way toward including the collected enthusiasm into your unpaid balance, so you are paying interest on interest.
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Can you lower down your Credit Card Interest Rate?
Yes, this can be possible as you may have control over some of the factors that affect the credit card interest rate. You have to work on your credit card score because a good credit card score means you will get a good credit card option. In addition, if you successfully create a good credit card score, then you can ask your credit card issuer to lower down the interest rate. Follow the below-mentioned ways to reduce your credit card interest rate.
Always try to pay your bill in full each month. Thus, in that way you can easily avoid the interest.
Make payment more than once a month so that your average daily interest rate would not accumulate much.
If you are not in a position to pay the full amount, then make more than the minimum payment.
We hope that you will get a better idea for the interest calculation of the credit card. Also, follow the mentioned steps to lower down your credit card interest rate. Now, we hope you will easily handle your credit card interest calculation.