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4 January, 15:19

Mia received a credit card offer in the mail. The credit card has an annual percentage rate of 26%. What is the approximate monthly interest rate that will apply to any unpaid balances on this credit card? Assume 12 equal months.

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  1. 4 January, 15:41
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    The approximate monthly interest rate = 2%

    Explanation:

    The approximate monthly interest is calculated by dividing the annual (12-month) percentage rate by 12.

    The idea is, if a total of 26% accounts for the interest for 12 months, therefore, the interest for 1 month = 26 : 12 = 2.167 %. but since we are asked to approximate, the answer will be 2%.

    Credit card users on using their credit cards, borrow money from the credit card companies with certain interests that are mostly charged daily, called Daily Periodic Rates, or calculated monthly as in this case, and such calculations are made from the Annual Percentage rate stated in the agreement. The interest is effectively calculated as Daily periodic rate * Average daily balance (debt carried over daily) * billing period.
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