Here’s how to calculate your interest on credit cards in UAE

It is important to know how to calculate your interest levied on your credit card because when you fail to pay off your views on time, your credit card company or bank imposes interest on the outstanding amount. It is important that you know the process of the imposition of this amount so that you can reduce it in the future. Read on to know all about the calculation of your interest on credit cards in the UAE… 

calculating interest on credit card

calculating interest on credit card

What is Interest on credit card?

Credit cards offer convenience to customers all the time. They allow you to purchase and make expenses even when you don’t have the money right away. However, when you make a purchase using a credit card, you use the bank’s money. In order to pay the bank back their money, you need to pay your monthly credit card bill. However, if you fail to pay back the amount in the grace period, the bank imposes a certain interest on the outstanding amount. This amount is called interest.

Banks provide the customer with a wide selection of credit cards that can offer all sorts of benefits, rewards and points ranging from air miles to dining benefits. However, when they advertise their credit cards, they fail to tell their customers that their interest is very high. 

Calculation of your interest on credit card

Interest is only applied to the outstanding amount on your credit card. Suppose you have used a credit of AED 1000 within 20 days of the month and you decide to buy a new mobile phone that cost you AED 2,000. This means that at the end of the month, you will have an outstanding bill amount of AED 3000. This amount is excluding the extra charges that your credit card will have which will depend on your expenses like balance transfers, currency exchanges etcetera.

The Math

To calculate your average daily balance, here’s the following calculation:

AED 1000 x 20 days = 20000

Then, AED 2000 x 10 days (remaining) = 40000

After you have successfully calculated your balance, it is now time to calculate your interest. your interest is calculated in the following method:

 

Average daily balance X your daily percentage rate X your billing cycle

Of course, this is the interest when you keep an outstanding amount due to the bank. If you, however, clear all your interest in full every month, you will not have to pay any interest to the credit card companies. You can also avoid a high-interest rate if you choose a credit card that has a low annual percentage rate. The annual percentage rate can be determined before you choose a credit card for yourself. There are different types of cards that you can choose from. If you have a standard credit card, you are most likely to pay fewer interest fees than the rates that come with a Platinum or a gold credit card. All these deliberations have to be made before you choose a credit card for yourself.

How to pay less interest on your credit card?

There are many ways to have to pay less interest on your credit card. Some of them are:

  • Pay your bill in full each month
  • Reduce your expenses so that you are able to pay off your bill
  • Use the grace period wisely and keep track of your payments
  • Do not miss payment deadlines and always make the payment on time
  • Do not extend your credit limit and stay within the limit
  • Look out for high-interest rates before you apply for a credit card
  • Check your monthly report meticulously to make sure there are no fraudulent charges that are being put to your card

What is the formula for calculating interest rate?

The general formula to calculate interest on credit card: (Number of days are counted from the date of transaction made x Entire outstanding amount x Interest rate per month x 12 months)/365

How do you calculate interest per month?

To calculate the monthly interest, simply divide the annual interest rate by 12 months.

How do you calculate monthly principal and interest?

Divide your interest rate by the number of payments you'll make in the year (interest rates are expressed annually). So, for example, if you're making monthly payments, divide by 12. 2. Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount

How do you avoid paying interest on a credit card?

Avoid paying interest on your credit card purchases by paying the full balance each billing cycle. Resist the temptation to spend more than you can pay for any given month, and you'll enjoy the benefits of using a credit card without interest charges.

Is it best to pay off credit cards in full?

Yes, It's Best to Pay Your Credit Card Balance in Full Each Month Leaving a balance will not help your credit scores—it will just cost you money in the form of interest