How Credit Card Interest Is Calculated (Daily Rate Explained)
Most credit cards work out interest using a daily periodic rate: your APR divided by 365. That rate is applied to your average daily balance over the billing cycle, then multiplied by the number of days in the cycle. The good news is that if you pay your full statement balance by the due date every month, you usually pay no interest on purchases at all.
Step 1: The daily rate
Take a card with a 21.99% APR.
21.99% ÷ 365 = 0.06025% per day.
It looks tiny. But it's charged every day, on every dollar you're carrying.
Step 2: The average daily balance
Your balance changes during the month as you spend and pay. The issuer adds up the balance at the end of each day and divides by the number of days in the cycle.
Say in a 30-day cycle you owed $1,500 for the first 10 days, then made a $600 purchase and owed $2,100 for the remaining 20 days:
(1,500 × 10 + 2,100 × 20) ÷ 30 = $1,900 average daily balance.
Step 3: Put it together
$1,900 × 0.0006025 × 30 days ≈ $34.34 of interest for the month.
If instead you'd carried a steady $2,000 for the whole 30 days, it would be about $36.15. In a 31-day month, about $37.35. Many issuers compound daily, meaning each day's interest gets added to the balance and earns interest the next day, which nudges the real cost slightly higher. It's also why a 21.99% APR card really costs a bit more than 21.99% a year if you carry a balance; see APR vs APY.
The grace period: how to pay zero interest
In the US, if you pay your full statement balance by the due date, most cards give you a grace period on new purchases, so no interest is charged. Card issuers must mail or deliver your statement at least 21 days before the payment is due.
The catch: the grace period usually disappears as soon as you carry any balance from one month to the next. Then interest starts on new purchases from the day you make them. Getting it back typically means paying the balance in full for a month or two.
Things that cost more than you'd expect
- Cash advances. Usually no grace period, a higher APR, and an upfront fee. Interest starts the day you take the cash.
- Trailing (residual) interest. If you pay off a balance you'd been carrying, you can still see a small interest charge on the next statement for the days between the statement date and your payment.
- Penalty APR. Paying late can trigger a much higher rate.
- Different balances, different rates. Purchases, balance transfers and cash advances can each have their own APR. In the US, amounts you pay above the minimum generally go to the highest-rate balance first.
How much a balance really costs over time
A month's interest of $35 doesn't sound like much, but if you're paying only the minimum, it keeps coming for years. A $5,000 balance at 22% can take nearly two decades to clear on minimum payments. The credit card payoff calculator shows how long yours will take and how a fixed payment changes it, and how long will it take to pay off my card? has example timelines.
Ways to pay less interest
- Pay the full statement balance whenever you can, to keep your grace period.
- Pay early in the cycle. Because interest is based on the average daily balance, paying mid-cycle lowers that average.
- Pay more than the minimum, ideally a fixed amount.
- Move the balance to a 0% transfer card if the fee makes sense; see is a balance transfer worth it?
Once you see that interest is just "balance × daily rate × days", the strategy becomes obvious: lower the balance, and lower it sooner.
Frequently asked questions
How is credit card interest calculated?
Divide the APR by 365 to get a daily rate, multiply it by your average daily balance, then multiply by the number of days in the billing cycle.
How much interest will I pay on $2,000 at 22% APR?
About $36 for a 30-day month if the balance stays at $2,000 the whole time.
How do I avoid paying credit card interest?
Pay your full statement balance by the due date each month. That keeps your grace period, so purchases don't accrue interest.
Why was I charged interest after paying off my balance?
That's usually trailing interest for the days between your statement date and your payment. It should stop once the balance is fully cleared.