# calculating credit card interest

#### Sergeant

##### Diabloii.Net Member
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.

#### Suicidal Zebra

##### Diabloii.Net Member
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.

#### Starfishied

##### Diabloii.Net Member
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.

#### LunarSolaris

##### Diabloii.Net Member
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.

#### Sergeant

##### Diabloii.Net Member
Mulguller said:
I managed to make a schedule of someone's car payments, so maybe I can help. I'll need a couple of things:

Your exact APR (example 19.98%, more exact the better)
Compounding periods per year on the balance (most likely 365 times per year)
The time you'd like to pay it off (such as 24 months)
Payments you want to make (such as \$100 a month)
The current balance.

You might not be able to give me all the information, but that's a good start.

What are you trying to figure out?
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.

##### Banned
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.

#### Dutchman

##### Diabloii.Net Member
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