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APR and repayment formula
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FDOes anyone have the mathematical formula for credit card repayments?
(For example
If I owed �1000 and the credit card APR is stated as being 17.5% what is the formula that calculates what interest is due, how muchof the principal is paid off with the minimum payment etc.)
I have searched the web but there is an awful lot to tralw through to try and find the answer!
Many thanks
(For example
If I owed �1000 and the credit card APR is stated as being 17.5% what is the formula that calculates what interest is due, how muchof the principal is paid off with the minimum payment etc.)
I have searched the web but there is an awful lot to tralw through to try and find the answer!
Many thanks
Answers
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Minimum payment varies between credit card companies. The lower the minimum payment, the longer it takes to pay off and the more interest you pay - assuming you only pay the minimum payment each month.
It can be between 2 and 5% of the outstanding balance. The minimum payment does not always cover that month's interest, so you pay interest on interest and the debt grows.
As you have seen, it is complicated and there is no one simple answer.
In your example, interest in the first month would be �14.59. Assuming minimum payment of 3% - �30 - roughly half of the payment would be interest and the remainder off the principal.
In month two, the outstanding balance would be �985, so the minimum payment would be �29.55, and the interest payable �14.36.
The formula for calculating the monthly interest is:
Balance x APR% / 12
This is a simplified estimate, but is not far out at all.
It can be between 2 and 5% of the outstanding balance. The minimum payment does not always cover that month's interest, so you pay interest on interest and the debt grows.
As you have seen, it is complicated and there is no one simple answer.
In your example, interest in the first month would be �14.59. Assuming minimum payment of 3% - �30 - roughly half of the payment would be interest and the remainder off the principal.
In month two, the outstanding balance would be �985, so the minimum payment would be �29.55, and the interest payable �14.36.
The formula for calculating the monthly interest is:
Balance x APR% / 12
This is a simplified estimate, but is not far out at all.
Only 1 answer
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