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How Does My Credit Card Interest Free Period Work?

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Client Question: How Does my Credit Card Interest Free Period Work?

It is possible to have a credit card and never pay interest – provided you pay the card off in full each month. If you don’t, you’ll pay interest.

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 Here’s how it works; Not all credit cards have an interest free period but many do. This is the amount of time that you have to pay for something you buy with your card before interest is charged. The interest free period will vary from card to card but can be up to 55 days. You will pay no interest if the entire amount owed on the statement is paid by the due date. If you don't pay your credit card off
in full each month,
you will pay interest.
The bank will send out a monthly credit card statement. This will tell you the minimum amount that needs to be paid and give you a date to pay it by. If you pay only this minimum amount, or less than the FULL amount owing, then interest is charged on the outstanding balance until the entire debt is paid off.

So, if one month's closing balance is not paid off in full on or before the specified payment date, interest will be calculated on this balance and on the daily balance created by any subsequent transactions (debits or credits) received to the account (excluding charges and interest) until the card is paid off in full.

If the previous month's total closing balance is paid in full on or before the specified due date no interest will be charged.

For credit cards that don’t offer an interest free period you will pay interest from the day an item is charged to your credit card. But you will usually be charged a lower rate of interest and have lower fees.

If you get cash out on your credit card you will attract immediate interest whether your card has an interest free period or not.

Finally, if you don't pay at least the minimum amount on your credit card before the due date, you will usually be charged a fee.  This fee is usually about $20.

Click here to read our article How to Use Your Credit Card Wisely.

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