1. What is the Monthly Finance Charge?

The monthly finance charge is the fee charged for carrying a balance on credit accounts. It's calculated based on your average daily balance and the annual percentage rate (APR) of your account.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Average Balance — Daily average balance in USD
• APR — Annual Percentage Rate in decimal form (e.g., 0.18 for 18%)

Explanation: The formula converts the annual rate to a monthly rate by dividing by 12, then applies it to your average balance.

3. Importance of Finance Charge Calculation

Details: Understanding your monthly finance charge helps you estimate the cost of carrying a balance and make informed decisions about credit card usage and payments.

4. Using the Calculator

Tips: Enter your average daily balance in USD and the APR as a decimal (e.g., 0.15 for 15%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Add up each day's balance and divide by the number of days in the billing cycle.

Q2: Why is APR divided by 12?
A: This converts the annual rate to a monthly rate for the calculation.

Q3: What's a typical APR for credit cards?
A: As of 2023, average credit card APRs range from about 15% to 25%.

Q4: How can I reduce my finance charges?
A: Pay your balance in full each month, pay more than the minimum, or transfer to a lower APR card.

Q5: Does this calculation work for all types of credit?
A: This is standard for credit cards; other loans may use different methods like simple interest.