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# How Do I Calculate APR on a Credit Card

This is an important concept to nail down. The APR, or annual percentage rate, is the cost of credit conveyed as an annual rate. But what you really need to understand is the daily periodic rate. Most credit card companies use a method called Daily Balance which means interest is compounded daily. See the steps below to calculate this.

1. Divide the APR by # of days in the year (365)
2. Example: If your APR is 14.5% you would divide that rate by 365 (14.5% / 365 = 0.0397). And you’ll need to divide by 100 to get the correct percentage of .04%.
3. The last step is to look at your average daily balance you’ve carried on your card. Multiply the average daily balance by the daily rate and then multiply by the number of days in the billing cycle.

For this example, we will assume 25 days are in the billing cycle. So let’s break it down even further:

If your average daily balance is \$500, you’d multiply that by 0.04% and multiply by 25 days in the billing cycle (500 * 0.04% * 25 = \$5)