The Basics of Credit Card Interest

The Basics of Credit Card Interest
By [http://ezinearticles.com/?expert=Aaron_Ballantyne]Aaron Ballantyne

Most people understand the basics of what credit cards are and how they work. If you ask individuals randomly to tell you what they know about credit cards they will say things like it is a piece of plastic you use to buy things. The majority of people also understand that you get charged interest on balances you carry over from month to month. What is less understood is the actual rate of interest. The rest of this article will help to explain about the interest rates that one pays on credit cards.

So what is the technical definition of a credit cards annal percentage rate or APR? The basic answer is it's the rate of interest that is charged by the card companies on the part of the balance you owe the card company that is not paid by the due date. For those who make a full payment are not charged interest. The actual interest rate is provided to the customers on every monthly statement. That number is the rate for the entire year which is converted to monthly rate by the credit card companies to compute the interest charged on unpaid balances.

The basic calculation of interest charged is as follows. First you take the balance owed and subtract the payment you make which equals the balance that the credit card company charges interest on. Next take the annual percentage rate and divide it by twelve which gives you the monthly interest rate. Finally all you need to do to come up with your interest charged is to multiply your monthly interest rate by the unpaid balance. Some companies might make the calculation slightly more complex by calculating and charging a daily rate of interest but except for very high balances the results will be close to the monthly rate calculation.

Most people understand the basics of what credit cards are and how they work. If you ask individuals randomly to tell you what they know about credit cards they will say things like it is a piece of plastic you use to buy things.

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