Unit 4 Lesson 3 Credit Card Finance Charge Intro

How to calculate periodic finance rate (Daily and
monthly)

PERIOD FIANCE RATE: The rate at which
interest is calculated by taking the APR and
dividing it by 365 (daily periodic interest rate) or
12 (monthly periodic interest rate).

EX: Find the periodic finance rate rate if a credit card
advertises an APR of 21.85%

DAILY: 21.85% / 365 = 0.0006 (rounded to ten
thousandths)

MONTHLY: 21.85% / 12 = 0.0182 (rounded to ten
thousandths)

EXAMPLE # 2

1.What is the daily and monthly periodic
finance rate on an APR of 28.95%

DAILY: 0.0007

Monthly: 0.0241

2.What is the APR if the daily periodic rate is
0.0008

APR = 0.0008 x 365 = 29.2%

How to calculate finance fee using periodic
fiance rate

Once you know the periodic rate (daily or monthly), all
you have to do to calculate the interest charged is
multiply the rate by the balance.

INTEREST CHARGED = periodic rate x balance owed x
# of days or months

EX: How much interest will be paid if the
previous balance owed was $495.13 and
the APR is 26.38%? Use the daily and
monthly periodic finance rate. Assume a 31
day billing cycle.

SOLUTION

DAILY:

1.Find the periodic finance rate:

26.38% / 365 = 0.0007

2.Multiply the balance by the above rate and
# days in billing cycle:

0.0007 x $495.13 x 31= $10.71

Monthly

1.Find the periodic finance rate:

26.38% / 12 = 0.0220

2.Multiply the balance by the above rate and
# months you are looking for (this case 1)

0.0220 x $495.13 x 1 = $10.89

EX: How much interest will be paid if the previous
balance owed was $495.13 and the APR is 26.38%?
Use the daily and monthly periodic finance rate.
Assume a 31 day billing cycle.