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calculating credit card interest

Discussion in 'Off-Topic' started by Sergeant, Feb 17, 2004.

  1. Sergeant

    Sergeant IncGamers Member

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    calculating credit card interest

    Ok, here's the dizzle. I want to make a spreadsheet that I can use to track credit card balance, interest rates, payments and so on.

    So, what's the formula for figuring interest on a credit card balance. I'll even give you some hypotheticals to show me with.

    Assume a balance of card x at $1000. Assume the APR is 18%. What's the formula for calculating how much interest will get tagged on to that $1000 balance at the end of the month.

    I'm getting close to understanding it better but I just haven't figured it out the rest of the way. And there is no way on earth I am going to try and do this on the phone with a customer screwup representative.

    So, credit card with a $1000 balance and an 18% APR. I know it's not as simple as taking 18% of the balance each month and tagging that on to the balance. You'd be racking up insane charges for which you'd be making ungodly payments just to keep up with the finance charges.

    So, someone smrater than me help me out.
     
  2. Suicidal Zebra

    Suicidal Zebra IncGamers Member

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    Take the 12th root of the APR I think is the standard way.

    i.e. 18^(1/12) = 1.148% per month.

    However, it may be that specific banks have different ways of charging.
     
  3. Starfishied

    Starfishied IncGamers Member

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    From what I read from a textbook, you divide your interest rate by 12 (months) and you get a monthly interest rate. After that, just multiply your balance or you carry-on balance to find the extras charges. I don't know where I put that book at, so I can't double check it for you.
     
  4. LunarSolaris

    LunarSolaris IncGamers Member

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    I wouldn't mind seeing the information on how it works. As a recall, I do remember hearing that revolving credit (carry-over balances) really screw you in the long run... but don't remember how the money calculates to make it that way. I'd rather have 1 credit card paid off every month than a revolving one.
     
  5. Sergeant

    Sergeant IncGamers Member

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    Ok, I'll give you one as an example.

    Balance $600, fixed APR is 8.9%. That's really all you ought to need to figure out how much interest will get added on to the balance everymonth. Assume, for the sake of the math, that no payments would get made. How would I figure what the balance would go up to each month, also assuming no new purchases, charges or cash advances are made.
     
  6. toader

    toader Banned

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    Sarge, we have to know the compound rate to be able to give an accurate answer.

    It could be comounded daily, weekly, monthly, quarterly, yearly, continuously....

    There is a different formula for each of the compound rates.
     
  7. Dutchman

    Dutchman IncGamers Member

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    As some have mentioned you need to adjust the rate to get the effective daily rate and then adjust all your formulas to daily interest.

    Divide 8.9 by 365 (possibly 360 if they use a 30 day month)
    to get your daily interest rate. Then multiply by your balance by the following formula

    (1+daily interest rate)^#ofdays

    By my calculations your balance after 31 days would be $604.55

    It might not exactly match the number you end up with since there are several legal ways that your cc company can calculate this stuff but it will be close enough on a small balance.

    Dutch
     

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