When do credit cards charge interest?
Quick insights
- Credit cards start charging interest when a cardmember carries a balance past the payment due date.
- Interest is calculated based on the card’s annual percentage rate (APR) and is applied to any unpaid balance.
- Paying off statement balances in full is one way that may help you avoid accruing interest.
Credit cards provide a line of credit, which can offer a helpful way to extend your purchasing power. However, there are repercussions if you don’t pay off your credit card in a timely manner.
Every month, you will receive a statement from your credit card company containing all your transactions over the billing period. That statement includes (but is not limited to) a statement balance, a minimum monthly payment and its due date. By agreeing to your credit card's terms, you're responsible for paying at least the minimum payment due each billing cycle.
If you don’t pay your balance in full, you will begin to accrue interest on the existing balance. Read on to learn more about credit card interest charges.
What is credit card interest?
Interest is the cost of borrowing money when you don’t pay off the full balance by the due date. Credit card interest is often expressed as an annual percentage rate (APR), and is charged on any unpaid portion of your balance. This can include purchases, cash advances and balance transfers.
You may want to take note of your credit card’s purchase APR, or the interest charged to purchases made with a credit card if you don’t pay off the statement balance by the due date. This can typically be found in your cardmember agreement.
How is credit card interest calculated?
There are a few methods credit card issuers use to calculate interest (check your cardmember agreement for specific details). Generally speaking, carrying a balance from month to month causes interest to accrue on a daily basis based on the periodic interest rate. This figure is calculated by dividing your credit card's APR by 365 for each day in the year.
When do I get charged interest on my credit card?
Some credit card provide a grace period of around 21 days to pay off your balance. This is usually the time between the end of a billing cycle and the payment due date. After the grace period, interest will start accruing if you have not paid off the full balance.
Cash advances have a separate APR and begin accruing interest immediately. Balance transfers and convenience checks often come with a promotional APR for a set period of time (usually between 10 and 18 months of opening the account, but can be offered later as a special rate). After that, any balance that wasn't paid begins accruing interest.
How to avoid interest charges on a credit card
Following these tips may not only avoid credit card interest, but they could also help your overall credit health:
- Pay your balances on time: If possible, it can be helpful to avoid carrying a balance on your credit card. When your statement is issued, you'll have a statement balance and a minimum amount due. If you pay the statement balance on time, there should not be a balance to charge interest on. Residual interest may accrue if a balance is not paid in full one month and then paid the next month.
- Establish and stick to a budget: Creating your budget should highlight what you have available to spend based on your income, bills and debt. When you aren't spending more than you can afford to, it may feel more reasonable to pay your credit card statement balance each month.
- Set up payment alerts or automatic payments: Alerts remind you to pay in case you're forgetful. Automatic payments take care of the payments for you every month, so you don't really need to think about paying on a set day. Either way, paying your statement balance each month by the due date can help avoid interest charges on a credit card.
How to get a lower interest rate on a credit card
Are you looking to qualify for a good interest rate on a new account or trying to lower an existing interest rate? Either way, here are some tips that could help:
- Work on your credit score: Improve your score as much as possible by managing your credit card effectively. Actions like paying on time, carrying a low balance, and keeping a low credit utilization ratio may improve your credit score over time.
- Maintain a perfect payment history: Paying off bills on time is one major factor of your credit score and appears on your credit report. If you have a perfect payment history with lenders, the new accounts you apply for may be approved at low interest rates.
- Apply for credit cards with promotional APRs: If you are looking to apply for a new credit card, it may be beneficial to shop around for different promotional offers. For example, it may be useful to apply for a credit card with a low introductory APR if you have a large purchase on the horizon.
- Use a buy now, pay later (BNPL) feature: Some credit card companies offer a BNPL option with small fees or a lower APR than your standard purchase APR. Chase Pay Over Time® allows you to pay over time for eligible purchases on your Chase credit card.
Lowering an existing interest rate may help you manage interest charges and accumulating debt. However, some of the keys to avoiding interest charges on your credit card are spending wisely and paying your full balance at the right time.
In conclusion
Interest is one of the main features of credit cards. Your cardmember agreement will include your credit card's interest rates, as well as information about how they're calculated and when they're assessed. To continue learning, read more on interest and APR.
