Some credit card issuers rely on something known as the daily periodic rate to determine how much interest to charge. They do this by multiplying that rate by the amount you owe on a card at the end of each day.
As the Consumer Financial Protection Bureau (CFPB) explains, that amount is tacked on to the previous day’s balance. If your issuer uses this method, it means the interest on your card is compounded on a daily basis.
Interest calculations can vary based on the issuer and the card. So can rates and other terms. So be sure to check your card agreement to know what to expect.
But generally, if you pay off your balance in full and on time every month, you might be able to avoid paying interest on new purchases. Even paying more than the minimum payment can help you reduce the amount of interest you’ll be charged.
Daily Periodic Interest vs. Annual Percentage Rate
The rate often associated with a credit card is the annual percentage rate, or APR. That’s a number you’ll need to calculate your daily periodic rate.
Rates might be variable or non-variable, depending on the card. And it’s also important to know that the interest rates on a credit card can vary based on the type of transaction. For instance, the APR for a regular purchase may be lower than the APR for other transactions, such as balance transfers and cash advances. There could also be penalty APRs for things like late or missed payments.
You can read more about how APRs are determined and what might be a good APR. And remember, fees and other charges could also affect how much you owe each month.
