How to Calculate Interest Rate on Credit Card ?

Credit cards are used worldwide because they provide the facility of immediate financial assistance to the customer,
but people usually forget that the interest incurred on the credit card is higher and people don’t know how to calculate interest rate on a credit card? But before understanding how to calculate interest rate on a credit card?
Let us first understand what is a credit card?

Credit card

A credit card is a slim rectangular plastic or a metallic card issued by Banks or financial institutions,
which lets you borrow funds from a pre-approved limit to pay for your purchases.
The limit is decided by the institution issuing the card based on your credit score and history.

There are various ways to calculate interest rates on credit cards,
but most of the ways are difficult and are very complex to calculate by everyone.
So we have mentioned an easy way to calculate the interest rate on the credit card.

Step 1: Find the annual percentage rate (APR) on the billing statement:

Annual Percentage Rate is a (%) percentage rate of interest livid on your credit card usage,
which is mentioned on your credit card bill.

Step 2: Calculate the DPR :

DRP stands for daily percentage rate, here is the formula for calculating DPR
Formula : Annual percentage rate / 365 days = DPR
Ex: APR/365 days = DPR,
14/365 = 0.038

Step 3: Calculate the average daily balance in your account :

Credit card charge interest on a daily basis as per Daily percentage rate,
so it is important to maintain credit card balance as much as possible,
the formula for calculating average daily balance:
Daily balance * days = sum of daily balance
the sum of daily balance / Days in Billing Period

Explanation of formula :
The sum of daily balance means the average balance of credit card into the number of days in the month divided by the number of days allowed by the credit card company to repay the bill, it is known as the average daily balance.

Step 4: Calculation of Daily Billing Period :

It is the final step in the calculation of credit card interest rate
Average Daily Balance * Daily Periodic Rate

Well know you know how to calculate interest rate on a credit card,
but the main question is how to reduce that interest rate?

Here are a few ways to reduce the interest rate on your credit card:

  • while there are various credit card company with various benefits,
    but purchase the credit card which is suitable for your requirement.
  • Select the card with the lowest Annual Percentage Rate
  • Try to avoid unnecessary usage of credit card
  • Always pay your credit card bills early and full.
  •  Try to maintain only one credit card or else it will lead to affecting your
    credit score.

Conclusion :

In summary, we have tried to cover the topic  “How to calculate interest rate on a credit card?”
Using a credit card is not a bad habit, but over utilizing it is a bigger mistake that will lead to a bad Cibil score for the future,
So follow the above tips to increase your financial stability, reduce the usage of credit cards, try to pay your bills on time.

[Read More: What Is CIBIL Score? And How To Improve Your CIBIL Score? ]  
[Read More: Credit Card: Meaning, Types, and Benefits ]  
[Read More: Things To Be Considered While Buying Health Insurance]

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