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Annual Fee
Interest Rate

Calculating Interest Rates

  • Interest Rate :
  • Annual Fee :


Different banks have different policies in calculating interest rates, and this policy or formula is often explained in the terms and conditions that you sign once you activate a credit card. Some interest rates vary daily, and some are fixed. To make things simpler to understand we have used approximations that can help you get an estimate of the monthly finance charges on your credit card.

  1. Determine the monthly interest rate. Some banks charge 3.5% monthly, and some charge only 3%. To simplify, let’s use 3%, or 0.03.
  2. Now, multiply this by the balance remaining on your credit card at the end of the billing cycle. Let’s say your balance is P10,000.
  3. 10,000 x 0.03 = 300

    This means that the interest you need to pay is P30. Your balance at the start of the next cycle is P10,000+P300 = P10,300.

  4. The typical minimum payment required is P500 or 6% of the minimum amount due, whichever is higher. Six percent of P10,300 is P618, which is higher than P500, so you are required to pay at least P618.

This is a simpler estimation. Most banks use a more complicated “daily” computation of finance charges, where they add up all your retail transactions, the principal portion of your instalment availments, retail fees, and the previous day’s outstanding balance. They deduct payments you make during the same day, to get your new retail outstanding balance. Then, they multiply your new retail and new cash advance outstanding balance for the day by the monthly interest rate. The result is divided by 30. This is the finance charge for the day. It is not included in the outstanding balance until statement date. The entire process is repeated everyday until your next statement date.

Be very careful about paying only the minimum amount due, because doing so may mean you’re not even covering the interest fees. If you cannot afford to pay your entire balance off, at least strive to pay twice the monthly minimum.  This will ensure that at least a portion of your repayment is applied to the balance and not just the interest rate.

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