How your credit card’s interest-free period works

A credit card gives the owner a chance to make purchases without paying interest for a specified period. If you understand how a credit card’s interest-free period works, you can shop smart to make the most of this lending facility and avoid paying interest. It is possible to have a credit card and never pay interest – provided you pay the card off in full each month.

Following the following advice means you can borrow money from the bank but not pay any administration or interest fees on it.

Most credit cards have an interest free period. 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 you your monthly credit card statement. On the statement will be the minimum amount that needs to be paid and a date by which to pay it. If you pay only this minimum amount, or less than the FULL amount owing, interest is charged on the outstanding balance until the entire debt is paid off. However, if the previous month’s total closing balance is paid in full on or before the specified due date no interest will be charged.

A common misconception is that each purchase gets its own 55 days without interest. Not every purchase you make is interest-free for that length of time. It depends on when you make each purchase and your payment date. Here is a practical explanation of how the interest free period works:

Let’s say you have a credit card with an up to 55 days interest free period and your credit card statement starts on the 1st and ends on the 30th of every month. If you have up to 55 days interest free, your credit card bill will be due on the 25th of the next month. For example:

• • 1 April – first day of the credit card statement

• • 30 April – last day of the credit card statement

• • 25 May – the day your April credit card bill is due.

This means that there is a total of 55 days from 1 April including the day your bill is due. Say:

• • On 1 April you make a purchase of R100. No interest will be charged on the amount of this purchase up to, and including, 25 May. You get 55 days interest free on this purchase.

• • On 20 April you make a purchase of R150. No interest will be charged on the amount of this purchase up to, and including, 25 May. You get 35 days interest free on this purchase.

• • On 30 April you make a purchase of R200. No interest will be charged on the amount of this purchase up to, and including, 25 May. You get 25 days interest free on this purchase.

Additionally, it is important to notice that interest free periods only apply to purchases. Any cash transaction or balance transfer will still incur interest charges. If you get cash out on your credit card you will attract immediate interest whether your card has an interest free period or not.

Also, 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.

Paying the full closing balance on your credit card statement on or before the due date is the only way to get your interest-free days. That’s the key to making the most of your credit card.

 

Sources
www.learn.nab.com.au
www.fortifi.co.nz
mybroadband.co.za/