Interest is the cost of borrowing money from a lender. To calculate your interest, you need to know three things:
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Your APR (annual percentage rate)
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Your average daily balance
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The number of days in your billing period
Keep in mind: your APR is an annual rate, but credit card interest is accrued daily.
Your APR determines how much interest you get charged on an annual basis.
Your average daily balance is the sum of all daily balances in a billing cycle, divided by the number of days in that cycle.
Your daily periodic rate is your APR divided by 365.
The interest you accrue on a monthly basis is determined with the following formula:
(Average daily balance) × (Daily periodic rate) x (Number of days in your billing period) = The amount of interest you accrue in a given month
For example, with an APR of 18%, the daily periodic rate would be 0.0493% (18%/365). Over a 30-day billing cycle, your interest charge on an average daily balance of $1,000 would be about $14.79.
Paying your balance
If you don’t pay your statement balance in full, the unpaid portion of the balance factors into your average daily balance and will accrue interest. Then, when you receive your next credit card bill, it will include your credit card charges, the accrued interest and any other credit card fees.
If you’ve carried a balance from one billing cycle to the next, you may still owe interest even when you pay the new statement balance in full. This is called residual interest, which accrues between the end of the previous billing cycle and when the statement balance is paid in full. You can minimize residual interest by paying off the entire balance listed on your statement by the due date.
Minimizing interest charges
To minimize common interest charges:
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Pay your balance off in full by the due date every month to prevent interest from accruing. If you can’t pay the entire balance, making more than the minimum payment can minimize how much interest you pay.
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Make your payments on time to avoid penalty interest charges. If you have a revolving balance, you may have to pay in full for 2 consecutive billing cycles to minimize the interest that appears on your statement.
- Avoid cash advances and balance transfers, which usually accrue interest and may have higher interest rates.
Types of APR
Your APR can be found on your credit card statement or in your account details. The type of APR may vary based on the transaction you’ve made:
Purchase APR is the rate applied to purchases made with the card
Cash advance APR is the cost of making a cash withdrawal using a credit card and certain other types of transactions
Temporary APRs
Penalty (Default) APR is an increase in APR for a period of time that could occur if you miss a payment or make a late payment. If a penalty APR is applied, your purchase or cash advance APR may increase.
Promotional APRs which may refer to:
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Introductory APR—the lower, limited time APR that may come with a new credit card
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Balance transfer APR—a special APR on a new or existing credit card that may only apply to the balance transferred
(Cash advances and other transactions may not be eligible for promotional rates.)
Credit card interest vs. APR
The main difference between interest and APR is that APR may reflect other costs, including application fees, administrative fees, origination fees and more. Capital One has the same interest charge and APR.
How can I minimize the interest charges on my credit card?
Paying your full balance by the due date each month is one way to minimize your interest charges.
If you carry a balance from month to month, you will pay the interest amount charged on your unpaid balance.
If you can’t pay off the entire balance, making more than the minimum payment can still help minimize how much interest you pay.
Other ways you can minimize interest include:
Making your payments on time and don’t exceed your credit limit
Avoiding cash advances, which may start accruing interest immediately and have higher interest rates
Can I make an Interest Saver Payment on my Capital One credit card?
Interest Saver Payments are typically available to Capital One cardholders who accept a promotional APR balance transfer offer.
After the promotional period, however, the rate on any remaining balance will change to a standard purchase rate and the Interest Saver Payments will no longer be available.
If you’re carrying a balance, an Interest Saver Payment is the amount you need to pay to avoid interest on new purchases during a balance transfer’s promotional period.
The Interest Saver Payment includes the minimum payment plus all non-promotional balances like purchases, cash advances, fees and finance charges.
To find your Interest Saver Payment, look for your Interest Saver Payment in the payment information section on your statement. View important rates and disclosures.
How can I find the APR on my credit card?
You can find your APR (annual percentage rate) in your account details on the Capital One website or in the mobile app.
What is APR and how is it calculated?
APR (annual percentage rate) is the yearly cost of borrowing money, plus any fees associated with the credit card.
You can calculate the APR by multiplying your daily periodic rate by the average daily balance and by the number of days in your billing cycle.
- Daily periodic rate: Divide the APR by 365. If your card has a 22% APR, your daily periodic rate would be 0.06%. Use the decimal form when you plug this rate into the formula.
- Average daily balance: Total the credit card balance from each day in the billing cycle. Then, divide by the number of days in the billing cycle to find the average daily balance.
- Number of days per billing cycle: Review your statements to find the number of days in your card’s billing cycle, which is usually 28-31 days.
Once you find these numbers, use the following formula:
Credit card APR = (Daily periodic rate) × (Average daily balance) × (Number of days per billing cycle)
