1. What is Credit Card Interest Calculation?

Credit card interest in Canada is calculated based on your average daily balance, monthly interest rate, and the number of days in your billing cycle. Understanding this calculation helps you better manage your credit card payments and avoid unnecessary interest charges.

2. How Does the Calculator Work?

The calculator uses the standard Canadian credit card interest formula:

Where:

• \( ADB \) — Average Daily Balance (CAD)
• \( R \) — Monthly Interest Rate (%)
• \( D \) — Number of Days in Billing Cycle
• \( I \) — Interest Amount (CAD)

Explanation: The formula calculates interest by multiplying the average daily balance by the interest rate and number of days, then dividing by the standard 30-day month factor.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers make informed financial decisions, avoid debt accumulation, and plan payments effectively to minimize interest charges.

4. Using the Calculator

Tips: Enter your average daily balance in CAD, monthly interest rate as a percentage, and number of days in your billing cycle (typically 30). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is average daily balance?
A: The sum of your daily balances divided by the number of days in the billing cycle.

Q2: How is the monthly interest rate determined?
A: Your credit card agreement specifies the annual percentage rate (APR), which is divided by 12 to get the monthly rate.

Q3: Why divide by 100 and 30 in the formula?
A: Dividing by 100 converts the percentage rate to a decimal, and dividing by 30 standardizes the calculation to a monthly basis.

Q4: Can interest rates vary between credit cards?
A: Yes, interest rates can vary significantly between different credit cards and cardholders based on creditworthiness.

Q5: How can I avoid paying credit card interest?
A: Pay your balance in full by the due date each month to avoid interest charges on purchases.