How Credit Card Interest Is Calculated (APR Explained)
Credit card interest is not charged on what you spent. It is charged on your average daily balance, at a daily rate derived from an APR that now averages above 20% — and the grace period that protects new purchases disappears the moment you carry any balance at all.
The mechanics
Issuers divide the APR by 365 to get a daily rate — 24% APR becomes 0.0658% per day — and apply it to the average of each day's balance across the cycle. On a steady $5,000 balance that is about $100 a month, $1,200 a year, for borrowing money you already spent. Pay in full every month and the grace period means you pay none of it. Carry even $50 past the due date and interest accrues on new purchases from the day they post, on most cards.
Minimum payments are typically the interest plus about 1% of the balance, or a small fixed floor. On that $5,000 balance at 24%, paying only the minimum takes roughly 18 years and costs about $6,800 in interest — more than the original spending. A fixed $200 payment instead clears it in about 32 months with roughly $1,750 of interest. Same card, same balance; the payment rule is the whole difference.
- Interest is calculated on average daily balance, not the statement balance.
- Cash advances and balance transfers often have separate, higher APRs and no grace period.
- Two payments a month (splitting payday) slightly reduces the average daily balance.
Questions, answered
Why did I pay interest in a month I paid the statement balance?
Trailing interest: interest accrued between the statement date and the day your payment posted. It appears on the next statement even after the balance is cleared.
Does a 0% balance transfer help?
It pauses interest for the promo window, minus a 3–5% transfer fee. It helps if the balance is gone before the window closes; whatever remains then reverts to the standard APR.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.