The Annual Percentage Rate (APR) is the annual interest rate charged on a loan, credit card, or other debt obligation. For a credit card balance, your interest rate charged is either a fixed rate, variable rate, or promotional rate. A credit card company may calculate your interest using a daily or monthly periodic rate.
Monthly APR Calculation for a Credit Card
The steps to calculate your monthly APR and monthly interest rate are as follows:
- Review your credit card statement and find the stated APR and applicable current balance.
- Divide the current APR by 12 (i.e., 12 months in a year) to find your monthly periodic interest rate.
- Multiply the monthly periodic interest rate by the current balance to calculate the monthly interest expense charged to the account.
Example Interest Calculation for Credit Card
John Doe has a credit card with an 18% fixed APR. The credit card company calculates the monthly interest expense using the monthly periodic rate.
John’s current credit card balance is $3,000. John calculates his monthly periodic rate as 1.5% (18% / 12). John calculates the monthly interest expense as $45 ($3,000 times 0.015). John’s adjusted credit card balance before any payments is now $3,045.