Understanding interest

Interest is the cost of borrowing money from a lender. When you make a purchase using your credit card, Capital One pays the merchant up front for you. Eventually, you pay Capital One back by paying your bill. When you pay your bill, you pay back the charge.

When most people think of interest, they think of a rate – specifically an APR (annual percentage rate). That interest rate determines how much interest you get charged.

How is it calculated?

A good way to understand how interest is calculated is to look at your statement, write down your balance each day for that billing period, add them up and then divide by the number of days in the billing period. That's your average daily balance.

Now, take your APR and divide it by 365 to get your daily rate. Finally, multiply your average daily balance by your daily rate, and multiply that result by the number of days in the billing period.

Keep in mind

  • If you carry a balance, you will pay interest. Paying off the balance in full by the end of your cycle date is the only way to ensure you’re left with no additional cost owed, otherwise you may have interest carried over.

  • One account can have several different interest rates for the balances on things like cash advances, balance transfers, and special transfers. Always check your terms to understand specifics on your account

  • Interest is applied to cash advances immediately and is usually higher than things like your APR and balance transfers

  • Interest rates are different for everyone depending based on things like credit history, payment history, and other similar factors. Requests to lower APRs factor in the same things and aren’t always possible

  • Interest rates can go up and down for different reasons. You’ll be notified of changes like this so you can plan accordingly