When you borrow money from a financial institution by using a credit card, you must pay interest on that debt. But how is credit card interest calculated in Canada?

The answer to this question isn’t as simple as it may seem. Credit card companies use different methods to calculate the interest charged on credit cards, and the methods they use can vary depending on the type of card you get.

Hence, understanding the different calculation methods is necessary before you get a credit card. Continue reading this blog to learn more about credit card interest calculation in Canada.

Average Daily Balance Method

Most credit card companies in Canada use the average daily balance method to calculate interest charges. In this method, your average daily balance is estimated by adding up the balances on your statement for every day of the billing period and then dividing that figure by the number of days in the billing period. The resulting number is then multiplied by the monthly interest rate to determine your total interest amount for the month.

Previous Balance Method

Companies in Canada also use the previous balance method to estimate interest rate amounts. It means that the interest charged on your outstanding balance for a given month is based on the balance you had in the previous month.

For example, let’s say you had a balance of $500 on your credit card at the end of January. If your interest rate is 15%, and your monthly statement period ends on the last day of each month, the interest charged for February would be based on that $500 balance in January.

Which Method Is Better?

Wondering which interest rate calculation method is better for you? The answer depends on how you use your credit card. If you always pay off your entire balance every month, you won’t be charged any interest no matter which method your credit card issuer uses to calculate interest charges.

But if you carry a balance from month to month, you’ll probably save money with a credit card that uses the average daily balance method instead of the previous balance method.

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You can reach out to the representatives at the Great Canadian Rebates for more details about our credit card rebates.