How credit card interest is charged

The payoff engine on this site charges interest once a month at APR divided by 12, rounded to the cent, and then applies the payment. That is a deliberate simplification so avalanche and snowball can be compared on a shared clock. Many card agreements do something else. They state a daily periodic rate, often the APR divided by 365, and multiply it by each day’s balance or by an average daily balance over the cycle.

Those two procedures are close and not identical. A daily rate over 31 days is a larger fraction of the APR than one-twelfth, and February is smaller. An average daily balance also depends on when payments post, which one monthly balance cannot see. The statement’s interest charge is what you were billed. The monthly model is only the comparison clock.

Truth in Lending, through Regulation Z, requires creditors to disclose the APR and the method used to compute the balance. Average daily balance including new purchases and excluding them are different methods. A grace period usually disappears when you revolve. The disclosure is in the account-opening papers and on the statement.

Penalty APRs and promotional rates that expire sit outside the flat monthly model. Sorting on a teaser that is about to step up aims the extra payment at the wrong balance. The comparison charts use the monthly model so two orders share a clock. They are not a servicer’s interest subroutine.