How Credit Card Interest Is Calculated

Card interest is charged daily. Your issuer divides the APR by 365 (some use 360) to get a daily rate, applies it to your balance each day, and adds it up at the end of the billing cycle. If you pay the full statement balance by the due date, most cards charge no interest at all on purchases.

The formula

1. Daily periodic rate = APR ÷ 365
2. Average daily balance = the balance at the end of each day in the cycle, added up and divided by the number of days
3. Interest for the cycle = average daily balance × daily rate × days in the cycle

A worked example

You carry $2,000 all month on a card with a 22% APR, in a 30-day cycle.

• Daily rate: 22% ÷ 365 = 0.0603%
• Interest: $2,000 × 0.000603 × 30 = about $36

Next month, interest is charged on the new balance, including that $36. That's how interest compounds on a card.

For reference, the Federal Reserve's average APR on cards that were charged interest was 22.15% in the second quarter of 2026.

The grace period is what makes a card free

If you paid last month's statement balance in full, new purchases get a grace period. By law, it runs at least 21 days from when your statement is sent to the due date. Pay the full statement balance by then and you pay no purchase interest.

Carry any balance past the due date and most cards remove the grace period. New purchases then start charging interest from the day you make them, until you've paid in full again, sometimes for two cycles in a row.

What doesn't get a grace period

• Cash advances charge interest from day one, usually at a higher APR, plus a fee.
• Balance transfers charge interest from day one unless there's a 0% offer. See how balance transfers work.

Why the minimum payment barely helps

The minimum is usually 1–3% of the balance, plus the interest. On a $2,000 balance at 22%, a lot of each minimum payment goes to interest. See the minimum payment trap, and run your own numbers in the credit card payoff calculator.

Ways to pay less interest

• Pay the statement balance in full, not just the current balance.
• Pay mid-cycle. A lower average daily balance means less interest.
• Pay down the highest-APR card first. See avalanche vs snowball.
• Consider a 0% balance transfer or a consolidation loan. They only help if the fee and the new rate beat what you're paying now. See when a consolidation loan saves money.
• Ask for a lower rate. Issuers sometimes agree, especially if you have a clean payment history.

FAQ

Is interest charged if I pay in full? Not on purchases, as long as the grace period applies.

What's the difference between APR and interest rate on a card? For purchases they're the same number. The APR on a card doesn't include fees.

Why was I charged interest after paying my balance? Usually "residual" or "trailing" interest. It builds up between your statement date and the day your payment arrived. It should stop the next month if you pay in full again.