Business credit card interest cost calculator: what carrying a balance really costs

Skip to the calculator if you have your APR to hand. The rest of this page explains exactly what the calculator does, what it leaves out, and why a rewards card only pays when the interest line is zero.

Finding your APR

The calculator does not fill in a rate for you, on purpose. Business card rates are priced per customer, and the number in an advert is rarely the one you were offered. Your APR is on the credit agreement you accepted when the account opened, and most issuers also show it in the app or online portal, often next to the credit limit. If the rate is variable it will move with the Bank of England’s Bank Rate, so use the current figure rather than the one on day one.

For Capital on Tap specifically: it advertises rates as low as 13.86% APR (variable) and does not publish a representative APR. Your rate is made up of your fixed business rate plus the Bank of England Bank Rate, and depends on your personal and business credit history and the Bank of England base rate. Some comparison sites print a single “representative” figure for it; we do not, because Capital on Tap does not publish one. The Capital on Tap fees and APR page sets out every charge from the credit agreement, and the glossary entry on representative APR explains what the term means and why it matters.

If you are comparing an offer you have not taken yet, enter the rate in the offer. If you have a range, run both ends: the gap between them is often bigger than people expect.

Method and assumptions: what the calculator models

An APR is an annual rate with compounding already built in. To turn it into a monthly rate without overstating it, the calculator takes the twelfth root: monthly rate = (1 + APR)^1/12 − 1. At 25% APR that is 1.88% a month, a little under the 2.08% you get by simply dividing by twelve. Charged on the balance and added to it every month, that rate compounds back to exactly the APR over a year.

Each month the calculator then:

1. charges the monthly rate on the opening balance;
2. adds that interest to the balance;
3. takes your repayment at the end of the month (or the whole remaining balance in the final month);
4. repeats until the balance reaches zero.

In “months to clear” mode it first works out the fixed monthly repayment that clears the balance in exactly that many months, using the standard repayment formula, then runs the same schedule. If your repayment is no larger than the first month’s interest, the balance never falls, and the calculator says so rather than printing a meaningless number. The month-by-month schedule under the result shows every step.

The assumptions, stated plainly:

• No new spending. The balance only goes down. On many cards, including Capital on Tap, new purchases also accrue interest while a previous statement is unpaid, so real costs are usually higher.
• Monthly, not daily, accrual. Issuers calculate interest daily. For a balance that sits still all month the result is almost identical; if you repay part-way through a month, daily accrual is slightly cheaper. The difference is small next to the effect of new spending.
• The rate stays fixed. A variable rate that tracks Bank Rate will move over a long repayment. Re-run the numbers when it changes.
• Purchases only. Cash withdrawals are different. Most cards charge interest on them immediately; on Capital on Tap there is interest on cash withdrawals from the day you take them, with no interest-free period at all.
• APR is treated as pure interest. On a card with an annual fee, the APR also reflects that fee, so the calculator slightly overstates the interest part. On a £0 annual fee card the two are the same thing.

The cashback line is simply 1% cashback of the balance: the reward the original spend earned. It is a generous comparison, because it assumes every pound of the balance earned rewards, which fees, cash and some payment types do not. The Capital on Tap rewards page lists what does and does not earn.

Why interest beats rewards, every time

The arithmetic is short. Cashback is paid once, when you spend. Interest is charged every month the balance is outstanding. A month of interest at an APR of 12.68% costs exactly 1% cashback of the balance. Above that APR, a single month of carrying the balance costs more than the spend ever earned.

Very few business cards price below that line. Even Capital on Tap’s advertised floor, as low as 13.86% APR (variable), works out at 1.09% a month, which is already more than the 1% cashback the card pays. And the floor is the best rate offered, not a typical one.

A worked example, using an illustrative rate rather than any issuer’s: a £5,000 balance at 25% APR, repaid at £500 a month, takes 12 months to clear and costs £590.18 in interest. The spend earned £50.00 in cashback. The interest is roughly 12 times the reward, and it overtook it in the first month.

How interest works on Capital on Tap

The card we use is a good example of the standard UK pattern, and its credit agreement is unusually plain about it. Capital on Tap charges no interest on purchases if you pay the statement balance in full by the due date. That clause is what makes the card free to use: on the £0 annual fee tier, a business that pays in full pays nothing except on cash and optional services such as Bill Pay.

Three details matter if you ever carry a balance:

• The reset. Miss a full payment and interest accrues daily on purchases, including new ones, until you next clear a statement in full by its due date. The avoid-interest guide quotes the clause.
• The minimum payment is the greater of 10% of the balance or £100. It keeps the account in good standing; it is not a repayment plan.
• The rate is variable, and the FAQ says your rate only changes at the start of a billing period. A Bank Rate cut lowers it; a rise increases it.

The repayment Direct Debit can be set to minimum, fixed amount or full balance. Only the full-balance option guarantees the no-interest outcome without effort each month. If what you actually need is to spend more than your limit in a given month, Capital on Tap says “Preloading lets you top up your business credit card with your own money when you need more than your credit limit allows.” Preloading uses money you already have rather than borrowed money, so it adds no interest; the credit limit page covers limits and Preloading in more detail.

If you are already carrying a balance

Run the calculator twice: once with what you are paying now, once with the most you could realistically pay. The difference in interest is usually the clearest argument for paying more. Then stop adding to the balance, or the reset mechanic above will keep new purchases accruing interest too.

If the balance will take more than a few months to clear, compare it with a term loan. Loans usually charge less than cards and force the balance down on a schedule, at the cost of an arrangement fee and interest from day one. Our business credit card vs loan vs overdraft guide sets out which tool suits which kind of spend. And if the real problem is cash flow rather than one large purchase, talk to the issuer before a payment fails, not after.

For the earning side of the same spend, the cashback calculator shows what a card pays when the balance is cleared in full every month, which is the only way the rewards are worth having. Unfamiliar terms on a statement or agreement are defined in our business credit card glossary.