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Credit Card Interest Formula:
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The credit card monthly interest calculation determines how much interest you'll pay on your credit card balance based on your average daily balance, monthly interest rate, and billing cycle length. This is the standard method used by Canadian credit card issuers.
The calculator uses the standard Canadian credit card interest formula:
Where:
Explanation: This formula calculates the interest charged on your credit card balance based on the average amount you owed each day during the billing cycle, multiplied by your monthly interest rate and prorated for the number of days in the cycle.
Details: Understanding how credit card interest is calculated helps consumers make informed decisions about credit card usage, debt management, and financial planning. It demonstrates the true cost of carrying a credit card balance.
Tips: Enter your average daily balance in CAD, monthly interest rate as a decimal (e.g., 1.99% = 0.0199), and number of days in your billing cycle (typically 30). All values must be positive numbers.
Q1: How is average daily balance calculated?
A: Add up your daily balances for the billing cycle and divide by the number of days in the cycle.
Q2: What's a typical credit card interest rate in Canada?
A: Rates typically range from 19.99% to 29.99% annually, which translates to approximately 1.67% to 2.50% monthly.
Q3: Why divide by 100 and 30 in the formula?
A: Dividing by 100 converts the percentage rate to decimal, and dividing by 30 standardizes the calculation to a 30-day month basis.
Q4: Do all Canadian credit cards use this calculation method?
A: Most Canadian credit card issuers use this average daily balance method, though specific terms may vary by issuer.
Q5: How can I reduce my credit card interest payments?
A: Pay your balance in full each month, make payments more frequently to reduce average daily balance, or consider balance transfer offers with lower rates.