How to calculate daily interest

Although a credit card’s interest rate is typically shown as an annual percentage rate (APR), many credit card issuers actually charge interest daily. 

Figuring out your daily interest involves a number called the daily periodic rate, sometimes called the daily interest rate. Knowing the daily periodic rate for your credit cards can give you a clearer view of how credit card interest works. 

What you’ll learn:

• Credit card issuers may use the daily periodic rate to calculate interest charges.

• You can find your daily periodic rate by dividing your APR by 365 or 360 (which depends on your credit card issuer). 

• Many credit card issuers base interest calculations on an average daily balance.

A daily periodic rate is the rate some issuers use to calculate credit card interest charges. If your issuer uses this method, it means the interest on your card is compounded daily.

Interest calculations can vary based on the issuer and the card. So can rates and other terms. So be sure to check your card agreement to know what to expect.

The rate often associated with a credit card’s interest is the APR. The APR is shown as a percentage and represents the cost of borrowing money annually. You can use the card’s APR to calculate your daily periodic rate, which shows the cost of borrowing for a single day.

Typically, dividing a credit card’s APR by the number of days in the year will give you the daily periodic rate. Thankfully, it’s pretty simple. Here’s how it works:

1. Find the APR. To calculate the daily periodic rate, you’ll need the APR for your credit card. You can find this on your credit card statement. If you’re a Capital One customer, you can locate your APR in the section titled “Interest Charge Calculation.”

2. Divide the APR by 365 or 360. The Consumer Financial Protection Bureau (CFPB) says you just divide your APR by 365—for each day of the year. But some issuers calculate the daily periodic rate by dividing by 360.

Let’s say one of the credit cards in your wallet carries a 19.99% APR. If you divide 19.99% by 365, you get 0.0548%.

To calculate your daily interest, credit card issuers multiply the daily periodic rate by how much you owe at the end of each day and then add that amount to the previous day’s balance. This means the interest compounds, increasing the balance daily.

Issuers might use an average daily balance to calculate the monthly interest charge. To get the average daily balance, an issuer might add all daily balances together and divide by the number of days in the billing period. Then, it might multiply the average daily balance by the daily periodic rate and the number of days in the billing cycle to get the interest charge you see on your monthly bill.

You can calculate your daily periodic rate using your credit card’s APR, which you can find on your monthly statement. Understanding how much daily interest accrues on your account can help you prioritize repayment and plan future spending.

Generally, if you pay off your balance on time every month, you can avoid paying interest on new purchases. Even making more than the minimum payment can help you reduce the amount of interest you’ll be charged.

As you manage your credit cards, you can see how it fits into the credit profile lenders see when you apply for loans or new credit cards. One way to do that is with CreditWise from Capital One. It’s free, and using it won’t hurt your credit scores.