When is interest charged on a credit card?
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 revolving line of credit, which can offer a helpful way to extend your purchasing power. However, there are consequences if you don’t pay off your credit card balance in a timely manner.
Every month, you will receive a statement from your credit card company listing all transactions over the billing period. The statement includes (among other details) your statement balance, your minimum payment, and the payment due date. Under your credit card’s terms, you’re responsible for making at least the minimum payment each billing cycle.
If you don’t pay your balance in full, interest will begin to accrue on the existing balance. Read on to learn more about credit card interest.
What is credit card interest?
Interest is the cost of borrowing money when you don’t pay 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, including purchases, cash advances and balance transfers. Your APR can typically be found in your cardmember agreement or on your statement.
How is credit card interest calculated?
There are a few methods credit card issuers use to calculate interest; your cardmember agreement will have the details. Generally speaking, carrying a balance from month to month causes interest to accrue on a daily basis based on the Daily Periodic Rate (DPR). It's calculated by dividing your credit card's APR by 365 (days in the year).
When do I get charged interest on my credit card?
Many credit cards offer a grace period, during which you can pay your statement balance in full without being charged interest; if you don’t pay the full balance by the due date (the end of the grace period), interest typically begins accruing.
Cash advances usually have a separate APR and start accruing interest immediately, while balance transfers and convenience checks may qualify for a promotional APR for a set period (often 6–18 months), after which any remaining balance reverts to the regular contract rate in your cardmember agreement and begins accruing interest.
How to help 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 may 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 can help remind you to pay; 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 low interest rate on a new account or trying to lower an existing interest rate? Either way, here are some tips that could help:
- Working 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.
- Maintaining 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.
- Consider 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, a credit card with a low introductory APR may be helpful if you have a large purchase on the horizon.
- Buy Now Pay Later (BNPL): Some credit card companies offer a BNPL option with terms that may differ from standard purchases. 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 help avoid accumulating debt. However, some of the keys to avoiding interest charges on your credit card are spending wisely and paying your full balance.
In summary
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.
