How to calculate credit card interest?

[Brett]

Is there formula for calculating daily credit card interest?

Thanks,
Brett

 

[JE McGimpsey]

There are several common methods - which does your credit card use?

 

[Norman Harker]

Hi Brett!

The credit card companies usually quote an APR12, otherwise known as a
Nominal rate compounded monthly. However, they apply an equivalent
rate compounded daily.

This is obtained using:

=(1+APR12/12)^(12/365)-1

In some jurisdictions they may quote an Annual Effective rate. In that
case use:

=(1+AnnEff)^(1/365)-1

--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)
Excel and Word Function Lists (Classifications, Syntax and Arguments)
available free to good homes.

 

[Brett]

I've tried of the formulas below and get #NAME? What is wrong?

I'm using Excel 2002 with Analysis Toolpak.

Brett

 

[JE McGimpsey]

You probably didn't replace APR12 or AnnEff with your actual rates.

 

[Brett]

The credit card company says the rate is an annual percentage rate. I
have tried this formula:

=NOMINAL(0.0599,365)

meaning a 5.99% compounded daily. That gives me 0.0581792, which
isn't what I want if the amount needs to be daily. Do I need to
divide the above by 365?

Brett

 

[Norman Harker]

Hi Brett!

This is an APR12 in most jurisdictions.

Daily rate is

=(1+5.99%/12)^(12/365)-1

If you divide the figure by 365 you get the wrong answer.

An APR, more correctly described as a Nominal Rate, is a rate
expressed in annual terms together with a frequency of compounding
whereby the rate charged is the APR/Frequency of compounding per
period of compounding. Where there is silence as to the frequency of
compounding, it is usually 12.

This compares with effective rates where the rate charged is that for
each period for which it is declared effective.

All Nominal and Effective rates can be converted by re-expression of
the following:

(1+Nomx/Freqx)^Freqx=(1+Nomy/Freqy)^Freqy

Where Freqx (or Freqy) is 1, Nomx/Freqx (or Nomy/Freqy) is the Annual
Effective rate
Nomx/Freqx is the Effective rate for the Freqx

I have an Addin that covers the 10 common Interest conversions
together with Excel and Word tutorial files; as usual, free to good
homes on direct request to the email address below.
--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)
Excel and Word Function Lists (Classifications, Syntax and Arguments)
available free to good homes.