What You Need to Know About Credit Card Interest Rates

1. A credit card offers 18% annual interest rate, compounded daily. What's the effective monthly interest rate? 2. A credit card offers 18% annual interest rate, compounded daily. How much would the monthly payments be to pay off a $2000 balance in 1 year?

1. The effective monthly interest rate for a credit card with an 18% annual interest rate, compounded daily, is 1.4567%. 2. To determine the monthly payments needed to pay off a $2000 credit card balance in 1 year, more information is required.

Understanding Credit Card Interest Rates

Credit cards are a common form of borrowing that come with an annual interest rate, which is the cost of borrowing money on the card. When considering credit card offers, it's important to understand how interest is calculated and how it impacts your finances.

Calculating Effective Monthly Interest Rate

To calculate the effective monthly interest rate on a credit card with an 18% annual interest rate compounded daily, we use the formula:

Effective Monthly Interest Rate = (1 + (Annual Interest Rate / Number of Compounding Periods))^(Number of Compounding Periods / Number of Months) - 1

Substituting the values, we find that the effective monthly interest rate is approximately 1.4567%.

Monthly Payments to Pay Off a $2000 Balance

When determining the monthly payments needed to pay off a $2000 credit card balance in 1 year, additional information such as the minimum monthly payment and any promotional interest rates or fees is required. Without this information, an accurate calculation cannot be provided.