Money guide
How credit card APR works
APR (annual percentage rate) is the yearly interest rate on a card. Card issuers usually charge it a little at a time, by turning the APR into a daily rate and applying it to your balance each day.
From APR to a daily rate
Most issuers divide the APR by 365 to get a daily periodic rate. Some use 360, which makes the daily rate slightly higher, so check your card agreement.
Daily rate = APR ÷ 365
24% APR: 24 ÷ 365 = about 0.0658% per day
That looks tiny, but it is charged every day on whatever you owe. You can find any percentage of a balance with the percent of a number calculator.
Estimating one month's interest
Many cards use your average daily balance: the balance on each day of the billing cycle, added up and divided by the number of days.
Interest ≈ average daily balance × daily rate × days in cycle
$2,000 average balance, 24% APR, 30-day cycle: $2,000 × 0.000658 × 30 = about $39.45
| APR | Daily rate | Monthly (APR ÷ 12) | 30-day interest |
|---|---|---|---|
| 15% | 0.0411% | 1.25% | $12.33 |
| 20% | 0.0548% | 1.67% | $16.44 |
| 24% | 0.0658% | 2.00% | $19.73 |
| 29.99% | 0.0822% | 2.50% | $24.65 |
Why the true yearly cost is higher than the APR
When interest is added to your balance daily, tomorrow's interest is charged on today's interest too. That compounding pushes the real yearly cost above the stated APR.
Effective annual rate = (1 + APR ÷ 365)^365 − 1
24% APR compounded daily: (1 + 0.24 ÷ 365)^365 − 1 ≈ 27.1%
The compound interest and Rule of 72 guide shows how the same effect works in your favour when you save.
The cost of small payments
Paying a fixed small amount each month means much of each payment goes to interest rather than the balance.
$3,000 balance at 24% APR (2% a month), paying $100 a month, no new spending:
About 47 months to clear, and roughly $1,627 in interest on top of the $3,000.
Real minimum payments are often a percentage of the balance, so they shrink as you pay down, which can stretch repayment out even longer than this example.
How to pay less interest
- Many cards offer a grace period: pay the full statement balance by the due date and purchases usually carry no interest.
- Pay more than the minimum whenever you can; extra payments go straight to the balance.
- Pay earlier in the cycle to lower your average daily balance.
- Watch for different APRs on cash advances and balance transfers, which are often higher.
Card terms vary by issuer and country. This guide explains the arithmetic only and is not financial advice; your card agreement and statement show the exact method used.