Your credit card has an Annual Percentage Rate (APR), which is “an annual percentage rate of interest a credit card holder will be charged on all or a portion of the balance if the full amount isn’t paid on or before the due date” according to Bankrate.com. But interest isn’t always charged annually. Sometimes, it’s calculated to reflect interest charges over a shorter period of time (daily, monthly, or quarterly), termed a “daily periodic rate.”

Discover It Card

Earn big‑time cash back that never expires.

Sponsored

Earn big‑time cash back that never expires with Discover it®.

Sponsored

Get the credit card that's got it all: Discover it®.

Discover it® gives you big‑time cash rewards with 100% U.S.‑based customer service.

Discover it® Card

Sponsored

Get the credit card that's got it all: Discover it® 

Discover it® gives you big‑time cash rewards with 100% U.S.‑based customer service.  

Sponsored

Earn big‑time cash back that never expires with Discover it®

Earn big-time cash back that never expires with Discover it. See Rewards

Using the Daily Balance Method to Calculate Interest

Simply put, the daily periodic rate (DPR) is the APR divided by 365 (some credit card issuers divide by 360). 1 So, if your APR is 15%, your DPR is .0411%. This daily periodic rate calculator can help you determine your rate and how much interest you’d owe on your outstanding balance.

Now, while your rate is the same, the amount you’ll owe in interest may be different because your credit card issuer calculates interest on a daily basis instead of monthly or yearly.

The more often interest is calculated, the faster it will accrue. When interest is calculated daily, the interest accrued each day is added to the previous day’s total. The next day, both the principal and the first day’s interest are accruing interest. On day three, the principal, interest from day one and interest from day two will accrue interest (and so on).

Doing the Math

Here’s an example of how to calculate interest using the daily balance method. Suppose you carry a $1,000 balance on your credit card for a year, without adding to it or paying off any part of it. The credit card has an APR of 15%, which equals a DPR of .041%.

Using DPR, that debt will grow to $1,161.39.

So, while you might be aware of your card’s APR, your credit card might actually be calculating interest using the daily balance method. 2

How to Be a More Informed Consumer

Credit card companies are required to disclose the APR on credit card applications and when you receive a new card. 2 Your billing statements also may inform you of your periodic rate. It’s important to read the fine print, especially if you expect to carry a credit card balance.

Discover it® Chrome Student Card

Get cash back on gas and restaurants with Discover it® Chrome.

Sponsored

Get Cash Back on Gas and Restaurants with Discover it® Chrome.

Sponsored

Get Cash Back on Gas and Restaurants with Discover it® Chrome.

Earn 2% at gas stations and restaurants on up to $1,000 in combined purchases each quarter.

Our Student Credit Card

Sponsored

Get Cash Back on Gas and Restaurants with Discover it® Chrome 

Earn 2% at gas stations and restaurants on up to $1,000 in combined purchases each quarter. 

Sponsored

Get Cash Back on Gas and Restaurants with Discover it® Chrome

Get cash back on gas and restaurants with Discover it Chrome for students. Go for it.

As you can see, the way interest charges are calculated can make a difference in the amount of interest you’ll actually pay. By informing yourself of your credit card’s terms, you’ll be in a better position to budget for payments.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

Up Next  

What Are Low Interest Rate Credit Cards?

Explore More Topics:

You Might Also Like...

Earn big-time cash back that never expires with Discover it. See Rewards