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 each time you pay your bill.
When most people think of interest, they think of a rate—specifically, an annual percentage rate (APR). That 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 pay your new purchase balance in full by your due date each month, you won’t be charged interest for those transactions that post to your purchase balance. If you don’t pay your full balance by your due date, you’ll be charged interest on those unpaid purchases. One account can have several different interest rates for the balances on things like purchases you make, 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 purchases and balance transfer APRs.
- Interest rates are different for everyone depending on things like credit history, payment history and other similar factors.