How Credit Card Interest Is Calculated
Grace periods, daily rates and why balances grow.
Most credit cards charge interest daily on your balance using a daily rate — the APR divided by 365. If you pay the full statement balance by the due date, you usually avoid interest on purchases thanks to the grace period.
The grace period
Pay the full statement balance on time and most cards charge no interest on new purchases.
Carry any balance, and you typically lose the grace period, so interest starts on new purchases too.
The daily calculation
A 24% APR is roughly 0.066% per day. Each day, that rate is applied to your balance.
Many issuers use your average daily balance over the billing cycle to calculate the charge.
Why minimum payments are costly
Minimum payments often cover little more than the interest, so the balance shrinks slowly.
Paying even a bit more than the minimum shortens payoff time and lowers total interest.
If you carry a balance, pay as early in the cycle as you can. A lower average daily balance means less interest.
Frequently asked questions
Do cash advances have a grace period?
Usually not. Interest typically starts immediately and the rate may be higher.
What is a balance transfer?
Moving debt to a card with a lower, often temporary, rate. Fees usually apply.
This guide explains a general concept; it isn’t a recommendation to buy, sell or borrow. For decisions about your own money, consider speaking with a licensed financial professional.
