If you have a credit card, you must be familiar with the term Annual Interest Rate or APR. This is the annual interest rate charged to your balance sheet or credit card bill. This term is actually misleading, because credit card bills do not charge interest per year. But also keep in mind that the deferred/introduction rate of interest (0 percent APR for six months!) expires after some time, so keep an eye on when your interest rate changes. So that you don't concede your finances, you must know how to calculate the actual interest on your credit card bill each month.
Step
Method 1 of 5: Calculating Fixed and Variable Interest
Step 1. Understand how these two flowers are both similar and different from each other
Both are a type of "purchase" APR, meaning that they apply to normal purchases charged to a credit card. You must know the Daily Periodic Rate (DPR) to calculate how much interest you pay each month. This will be explained in the next stage. The thing to note is that if you pay before the end of the billing cycle, you don't have to pay interest on your purchases for these two “purchase” APR categories. Interest is charged only to the debt at the end of the billing cycle.
- APR remains unchanged, unless you keep failing to pay on time. At this point, the credit card company will send a letter containing the new penalty/default interest.
- Variable interest may change, depending on national interest rates or other economic factors. For example, it can change based on fluctuations in the main federal interest rate published in the Wall Street Journal.
- Look at contract or credit card statement sheets for your variable and fixed APR values.
Step 2. Calculating Daily Periodic Rates (DPR)
Credit card companies usually calculate the interest charged to you each month. Because the number of days in the month varies-for example, January has 31 days, while February has 28 days-most credit card companies use the DPR formula to calculate interest. To calculate DPR, divide the annual APR value by 365 (number of days in a year).
For example, for a fixed or variable APR of 19 percent: 19 365 = 0.052. This is your DPR value
Step 3. Multiply that number by the number of days in the current month
So in January, you must multiply the DPR by 31: 0.052 x 31 = 1.61. This means that the interest on the bill for January is 1.61 percent. In February, multiply the DPR by 28: 0.052 x 28 = 1.46. This means that the interest on bills for February is 1.46 percent.
Step 4. Multiply the interest on the bill by the outstanding balance
Keep in mind that if you pay the full amount on the due date, you won't be charged any interest. However, if you pay only the minimum bill or less of the entire outstanding bill, you must pay interest on the bill for that month. Convert your interest rate to decimal by moving the decimal point two positions to the left. Thus, the interest for 1.61 percent in January would be 0.0161, and the 1.46 percent interest in February would be 0.0146.
- If your card's outstanding balance at the end of the January billing cycle is IDR 13,330,000, - you have to pay IDR 13,330,000, - x 0.0161, or IDR 214,613, -
- If your card's outstanding balance at the end of the February billing cycle is IDR 13,330,000, - you have to pay IDR 13,330,000, - x 0, 0146, or IDR 194,618, -
Method 2 of 5: Calculating Penalty Interest/Default APR
Step 1. Know what APR penalty/default interest is
This interest rate is higher than the interest earned when signing credit card ownership. This interest is triggered if you violate the penalty terms in your contract. Examples of these violations include purchases that are over the balance sheet or persistently late paying monthly bills.
Step 2. Determine the APR penalty/default interest rate
You may be able to find the default APR penalty/default interest rate on your contract or monthly billing statement. Most likely the bank will send a letter stating the change in the value of the interest. Under the Credit Card Accountability Statement and Liability Act of 2009, or the CARD Act, banks are required to give a warning and 45 days before adjusting your billing interest. Your bank will explain the new interest rate in their letter.
For example, you may have had an APR of 20 percent. But twice late in paying - that's 60 days. You will receive a letter from the credit card company stating that they are increasing the monthly interest to a default/penalty rate of 35 percent
Step 3. Calculate the DPR of your new dude
Divide this new interest by the number of days in the year, 365. In our example, the calculation is as follows: 35 365 = 0.0958. This is the interest you have to pay each day.
Step 4. Find your interest rate for the current month
The number of days in a month varies, so make sure you use the correct number for the month you want to calculate. Since January has 31 days, multiply 0.0958 x 31 to get 2.97. Your interest for January is 2.97 percent of the month's bill.
Step 5. Multiply the monthly interest by the total outstanding debt
Remember to convert the percentage to a decimal number. In our example, 2.97 percent becomes 0.0297.
If your total credit card debt is IDR 13,330,000, - at the end of January, then you pay IDR 13,330,000, - x 0.0297, or IDR 395,901 for the interest only
Method 3 of 5: Calculating Tier APR Interest
Step 1. Understand how tiered APR or tiered APRs work
With the APR tier, credit card companies apply different interest rates to different parts of the billing statement. For example, charging 17 percent on bills of a maximum of Rp. 13,330,000, - and 19 percent for bills above Rp. 13,330,000, -. If your total bill is Rp.19,995,000, - you have to pay 17 percent interest on the bill of Rp.13,330,000, - and 19 percent on the remaining bill which amounts to Rp.6,665,000.
Step 2. Calculate the DPR value for each tier
Know how many tiers or tiers are applied to the total billing at the end of the billing cycle. You must know the value of the DPR for each of these interest. So, for example for our example:
- 17 365 yields a DPR value of 0.047 for IDR 13,330,000, - first on the bill.
- 19 365 yields a DPR value of 0.052 for IDR 6,665,000, - the rest.
Step 3. Multiply each DPR by the number of days in the month
The calculation method is the same as for fixed and variable interest. But you have to remember to apply each stage to each tier. Suppose that we calculate the monthly interest for January, which contains 31 days.
- 0.047 x 31 = monthly interest of 1.457 percent for IDR 13,330,000, - first.
- 0.052 x 31 = monthly interest of 1.612 percent for the remaining Rp. 6,665,000.
Step 4. Calculate the interest paid from the total bill
Again, slide the decimal point two points to the left to convert the percentage to a number that can be multiplied.
- IDR 13,330,000, - x 0, 01457 = IDR 194,218, 1, - of the interest paid for the first IDR 13,330,000, - on the bill.
- IDR 6,665,000, - x 0.01612 = IDR 107,439, 8 of the interest paid for the remaining IDR 6,665,000.
Step 5. Add up the two results to get the total value:
IDR 194,218, 1, - + IDR 107,439, 8 = IDR 301,657, 9, - of the interest paid for the total bill amounting to IDR 19.995,000.
Method 4 of 5: Calculating Interest for APR Cash Withdrawals
Step 1. Understand what a Cash Withdrawal APR is
The interest for this can be higher than the regular APR, but is very different from the purchase interest. Interest on the APR of purchases of goods is only calculated at the “end of each billing cycle”. However, on Cash Withdrawal, interest is charged “daily” until you pay the debt from the cash withdrawal. Cash advance interest applies once you do any of the following:
- Withdraw cash from an ATM or bank branch using a credit card.
- Transfer funds from credit card to overdraft account.
- Write a check that is funded from a credit card.
- Use a credit card to buy foreign currency.
Step 2. Check your invoice and contract to determine the APR for cash withdrawals
You may have to squint in order to read the deliberately small letters, but it's definitely there.
Step 3. Calculate your DPR
This is the interest that must be paid per day. To calculate it, divide the APR of cash withdrawals by 365 days. For example, if your cash withdrawal APR is 20 percent, complete the following calculation: 20 365 = 0.055
Step 4. Count how many days you wait until you finally pay off the cash withdrawal
Multiply the number from the previous step by the previous number of days. So, if you wait 30 days before paying a cash withdrawal with a 20 percent APR, then the calculation is: 0.055 x 30 (days) = 1.65. The interest on your cash withdrawal is 1.65 percent.
Step 5. Calculate the amount of interest you pay
Multiply the interest from the previous step by the amount of money withdrawn. If you withdraw IDR 13,330,000, - in the example above, the calculation is: 13,330,000 x 0, 0165 = 16, 50. You have to pay interest on cash withdrawals of IDR 219,945, -.
Method 5 of 5: Protecting Your Finances
Step 1. Get in the habit of making payments on time
The later the payment is made, the higher the APR that will be set by the credit card company. If you forget to pay, get paid immediately. Chances are the credit card company will immediately report you to the billing bureau, even before 30 days have passed. This will damage your credit score to such an extent and take a long time to recover. Keep your FICO score high by proving that you are a reliable debtor.
Step 2. Watch for an increase in interest rates
The law requires credit card issuing companies to give warning and 45 days before increasing the interest on the bill. However, the company will not provide any explanation if it does raise interest. If you don't get an explanation, contact your credit card company to see why it was changed. If they can't come up with a good answer, it may be time to switch your balance to another credit card.
One reasonable reason to increase interest is because of persistent delays or defaults, or because of a low credit score
Step 3. Try lowering the APR
Credit card issuing companies are in business to earn money. They won't want to lower your APR just because you're a good customer. If you want to be rewarded for years of paying on time, call your credit card company and convince them to change the interest rate on your bill.
- Before contacting them, do some research on what a fair and reasonable APR value is for your FICO score.
- Then contact them and try to renegotiate your APR based on the results of that reset.
- If the credit card company is not willing, immediately transfer your balance to another credit card.
