Credit Card Interest Rates

Understand how credit card interest rates are calculated on your account. Find out how to avoid paying interest charges by clearing your balance in full every month and not making any cash transactions on your card.

What is interest?

Although there are slight differences between the credit card interest rate and the APR (Annual Percentage Rate), it would only confuse matters to go into detail here. Essentially, interest is charged by any lender for providing you with credit. The way your specific credit card provider works out your interest will be shown in their Terms and Conditions.

The annual percentage rate differs depending on the type of product you are using, and according to the type of transactions being carried out. For example, you will be charged a different credit card interest rate for purchase than you are for cash advances. You may also be offered a special discounted rate for any balance transfer you make to a credit card. All of these applicable rates are pulled together and applied to whatever balance remains unpaid at the end of the monthly statement period.

How is interest calculated?

Interest is calculated by applying the relevant daily percentage rate – which is the APR divided by 365 – to however many days an unpaid balance has remained on your account from the previous month. This daily percentage rate can be found on your account statement.

What is an interest-free period?

This is a standard feature on most credit cards and provides the customer with the chance to avoid paying interest on purchase transactions. For this to happen, you must pay off the account in full by the specified payment due date every month. With an interest-free period, credit card interest rates will not be charged on a purchase if you pay the full balance by the payment due date for the statement on which the purchase is listed, and you also cleared the closing balance of your previous statement by its payment due date.

When is purchase interest charged?

If the account has an interest-free period, credit card interest rates will come into effect and cause a charge on your account if the closing balance of the credit card account is not paid in full by the payment due date. In this case, interest will be calculated on a daily basis from the day the transaction originally happened until the end of the statement period. In the rare situation where there isn’t an interest-free period, interest starts to accrue from the moment a purchase transactions is carried out and is billed at the end of each statement period.

When is cash interest charged?

credit card interest rates for cash transactions are usually higher than for purchase transactions, and interest is always charged daily from the moment the transaction is made and is billed at the end of each statement period. Interest-free days do not apply to cash transactions. For this reason, cash transactions should be made on debit cards instead.

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