How To Calculate Credit Card Interest: A Comprehensive Guide To APR In Singapore

Personal Finance

How To Calculate Credit Card Interest: A Comprehensive Guide To APR In Singapore

September 18, 2023

Credit cards have become part of our financial constitution. While numerous credit card benefits exist, these cards attract high-interest rates. Let’s begin by understanding some basic terms.

Simply put, credit card interest refers to the additional cost resulting from borrowing money from the card issuer and not fully paying it back. The additional funds accrue interest over time. On the other hand, the Annual Percentage Rate (APR) is the interest charged for borrowing money on your credit card.

Understanding how these elements work will save you from paying high-interest rates and slipping into credit card debt. Keep reading to learn how to calculate credit card interest.

Benefits Of Knowing High-Interest Rates & Credit Card Debt

To calculate credit card interest in Singapore, simply multiply your average daily balance by the daily rate. After doing so, multiply the figure by the days in your billing cycle.

However, knowing interest rates and credit card debts helps you better utilise credit cards and puts you in a healthier financial position. Some of these advantages include the following:

  • Avoiding the debt cycle
  • Cost Savings
  • Financial planning
  • Credit score maintenance

We are going to review these benefits as we dig deeper. Read on to gain more insights.

What Is Credit Card APR?

The interest rates on credit cards are usually registered annually. Credit card APR, therefore, states the annualised cost of borrowing on the card. Apart from the nominal interest rate, the APR also incorporates additional fees linked to the card.

The first credit card APR computation element is the nominal interest rate. This refers to the yearly rate charged on the card. Additional fees like cash advance fees and delayed payment fees are also input.

The compounding frequency, often monthly in Singapore, sums it up. The computation formulae are as follows:

APR = [NIR + (Total Fees and Charges / Average Outstanding Balance)] x 12

Variations Of Credit Card APR

Variations Of Credit Card APR

Credit cards have varied APRs. Let’s review some of them:

Cash Advance APR

When you use your credit card to withdraw funds or get a cash equivalent, the APR is a cash advance APR. It is significantly higher compared to its counterparts.

The interest charged piles from the day you take the cash advance. Furthermore, it usually bears additional cash advance fees.

Purchase APR

One of the most apparent interest rates is the purchase of APR charged when you make purchases on your credit card. This form of APR should be fine if you pay your credit card expenses in full on time.

Balance Transfer APR

Sometimes, individuals wish to consolidate their credit card debt and reduce the interest charges. To do so, they transfer credit card balances to a single card. This transfer process attracts an APR known as a balance transfer. It is usually higher than the purchase APR.

Credit Card Interest Compounding Frequency

While credit cards compound interest daily, issuers highlight the card’s APR. Often, you’ll realise that this debt accumulates much quicker. In Singapore, the compound interest is monthly.

This feature means that if you fail to pay your card balance before the due date, the interest is directly computed, and the outstanding balance plus any existing interest charges.

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Computation Of APR On A Credit Card In Singapore

Identifying the exact value you should pay on the outstanding balance carried forward on your credit card may be a hassle. However, through the following steps, you should be good to go.

1. Convert Your APR To A Daily Rate

Considering most issuers compound interest daily, you must first identify your daily rate. To do so, divide your APR by 365 days.

For instance, if your card has an APR of 27.5%, divide it by 365 to get a daily rate conversion of 0.00075342. Simply put, you can get your daily rate by using the formulae ((APR/100)/365)

2. Find Your Average Daily Balance

After identifying your daily rate, you must identify your average daily balance. This step might take a while, so get comfortable. To compute this figure, you must sum up each day’s balances in the billing cycle.

If you were operating under a 30-day billing cycle, for instance, you have to sum up the balances for all 30 days and divide the sum by the number of days in the rotation, in this case, 30.

In case of any prior remainders, you add them in the computation. Similarly, if you made payments, be sure to deduct them.

3. Calculate Your Interest Charges

Now that you have both figures, you can derive your interest for the specific billing cycle by multiplying the average daily balance by your daily rate.

25% APR: Is It High Or Low In Singapore

Regarding Singapore, a 25% APR is fair and, quite frankly, on the lower scale when contrasted with most credit card issuer rates. For example, cards issued by the Development Bank of Singapore and the Post Office Savings Bank offer a rate of 26.80% p.a.

As for their cash advance rate, it prevails at 28% p.a; accrued from the withdrawal rate, and compounded if the charges on the amount advanced are not fully repaid.

Another instance is the American Express True Cashback Card, which offers a 26.90% p.a. purchase APR compounded if:

  • You have not paid your closing balance in full
  • Your account has undergone over three unpaid defaults in the last year for two or three months.

What Is A Compound Interest Calculator

Compound interest is a helpful concept when diligently understood and employed. If neglected, however, the consequences can be dire.

If you are constantly bothered about how to calculate your credit card interest rate, worry no more. You can use a compound interest calculator to derive these figures easily.

Furthermore, you can also use the debt calculator platform to get a better glimpse into your interest charges calculation.

Importance Of Credit Cards In Your Life In Singapore

Credit cards can be a handy tool if used correctly. What disadvantages most users is their failure to clear their balances and letting them spill over into the next month. If you continually let this happen, you’ll drown in compounding debt.

When used correctly, you can reap numerous benefits like:

  • Earning cashback
  • Gaining miles or reward points
  • Boosting your credit score

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Credit cards are very effective in our modern-day lives. However, their degree of usefulness goes as far as the owner’s understanding.

Many holders often stumble into staggering debt due to failure to fathom the compounding interest rates. However, after reading this piece, that should no longer be a problem.

Remember, you have to practise responsible credit card usage to minimise debt. If possible, take online financial literacy classes to learn how to use a credit card wisely to increase your credit score.