Thursday, May 19, 2022

# How to calculate APR for credit card balance transfer offers

by Scott Bilker
 Scott Bilker is the founder of DebtSmart.com and author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. Receive the 5-Year Loan Spreadsheet when you subscribe to his email newsletter.

Scott,

Do you know a way to calculate APR with low balance transfer offers with credit cards? All methods I’ve previously read about don’t work, because they assume you make equal payments for the full term until the balance is paid off. This is how mortgages are paid, so the APR formulas work for those.

With credit cards, I only pay the minimum payment (1% of the balance) for the each month, and then pay it off in full (or transfer it to another credit card) at the end of the term.

So for an example, how do I calculate the APR for these potential offers so I can determine which is the best deal? Assume transferring \$10,000.

1. 0% balance transfer fee, 2% interest rate for 12 months
2. 2% balance transfer fee, 0% interest rate for 13 months
3. 3% balance transfer fee, 0% interest rate for 21 months

Thanks,
Tim

Hi Tim,

You can get good estimate for comparing these offers by using the below formula:
(Transfer Rate/Offer Months)*12 + Offer APR = True APR

1. 0% balance transfer fee, 2% interest rate for 12 months –> (0%/12)*12+2% = 2% APR
2. 2% balance transfer fee, 0% interest rate for 13 months –> (2%/13)*12+0% = 1.85% APR
3. 3% balance transfer fee, 0% interest rate for 21 months –> (3%/21)*12+0% = 1.71% APR

The above are estimates because they don’t take into account your 1% monthly payment (\$100) and the \$10,000 amount. Here are the exact APR’s given those parameters, however, it would be a fairly lengthy discussion as to how they are calculated. Also, these results assume that the balance transfer fee will be added to the balance transfer amount of \$10,000.

1. 0% balance transfer fee, 2% interest rate for 12 months –>2% APR
2. 2% balance transfer fee, 0% interest rate for 13 months –> 1.94% APR
3. 3% balance transfer fee, 0% interest rate for 21 months –>  1.87% APR

Best,
Scott

Creator of DebtSmart.com
Author of:
Talk Your Way Out of Credit Card Debt
Credit Card and Debt Management
How to be more Credit Card and Debt Smart

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