How credit card interest is actually calculated

The daily periodic rate

A credit card APR is an annual figure, but no issuer waits a year to charge it. They divide it by 365 to get a daily periodic rate, and apply that rate once for every day in the billing cycle.

daily periodic rate = APR ÷ 365
22.99% ÷ 365 = 0.062986% per day

A few issuers divide by 360 instead, which makes each day fractionally more expensive. The divisor is disclosed in your cardholder agreement, and it is worth knowing which one yours uses before concluding that a statement is wrong.

Why the length of the month matters

This is the part that surprises people. Because interest accrues per day, a longer statement period costs more — and billing cycles are not all the same length.

Here is $6,000.00 at 22.99%, held constant with no payment, across three cycle lengths. The last column compares each against the APR ÷ 12 figure of $114.95 that a simple monthly model would give:

A February statement can be $9.13 cheaper than the monthly model predicts and a 31-day statement $2.20 more expensive, on identical debt at an identical rate. Nothing has changed except the calendar.

And here is the fact that resolves it: over a full year the two methods produce exactly the same total. Twelve monthly charges of $114.95 come to $1,379.40. 365 days at 0.062986% come to $1,379.40. The daily method does not cost more over a year — it just distributes the same money differently across statements.

The average daily balance

The rate is only half of it. The other half is what the rate is applied to — and it is not your closing balance. Your issuer records what you owed at the end of every day in the cycle, adds those figures up, and divides by the number of days.

Which means the date a payment lands changes the interest even when the amount does not. Same $6,000.00 balance, same $200 payment, same 30-day cycle — only the timing moves:

$3.65 between the best and worst timing of the same payment. That is the entire mechanism behind the advice you have read elsewhere about paying early — stated here as arithmetic rather than as a recommendation, because whether it is worth arranging depends on circumstances this page knows nothing about.

Compounding: the number that is not on your statement

Everything above assumed interest is charged and then left alone. On most US cards it is not — unpaid interest is added to the balance, and the next day's rate applies to that larger figure. Interest earns interest.

On $6,000.00 carried for a year at 22.99% with nothing repaid:

without compounding: $1,379.40
with daily compounding: $1,550.30
effective annual rate: 25.838%

$170.90, and an effective rate nearly three points above the one printed on the agreement. The APR is a nominal figure; the rate actually charged on a balance that is never cleared is higher, and that higher number appears nowhere on the statement.

Where our calculator sits, and where it does not

Our debt payoff calculator uses APR ÷ 12 against the opening balance of each month. That is a simplification, and this page exists partly to say so precisely rather than bury it in a footnote.

It is the right simplification for the question the tool answers. A payoff schedule spans years; over that horizon the daily and monthly methods converge to the same total, as the $1,379.40 above shows. Modelling per-day accrual would require knowing the exact date every future payment will land — something no calculator can know, and asking for it would trade a large false precision for a small real one.

What it means for you: expect our figure to be within a few dollars of a statement in any given month, and closer than that over a year. If it is out by more, the cause is almost always new spending, a variable rate that has moved, a promotional period ending, or fees — none of which the model includes. You can check the arithmetic itself in a spreadsheet.