How and when is credit card interest charged? – Forbes Advisor


Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

If a credit card balance isn’t paid in full by a due date, credit card companies start charging interest. Some banks will also charge late fees and new purchases will incur interest immediately. In other words: Not paying your credit card bill in full and on time can be a costly misstep with months of financial consequences.

Find the best credit cards for 2022

No credit card is the best option for every family, every purchase or every budget. We have selected the best credit cards so as to be the most useful for the greatest number of readers.

How can I find out the interest rate on my credit card?

The interest charged on your credit card is based on the APR (annual percentage rate) of your card. This is specific to the card and can be configured in several ways:

  • A fixed interest rate. If you have a fixed APR, your interest rate will remain the same for the duration of your card membership. Only a handful of credit cards on the market today offer fixed interest rates.
  • A variable interest rate. Most credit cards offer a variable interest rate, that is, a rate that can fluctuate with the prime rate, that is, the interest rate that banks charge their most creditworthy client companies. Most credit card issuers add their own percentage to the prime rate to determine your credit card’s APR.
  • A promotional interest rate. Some credit cards offer a promotional low or 0% APR rate as an incentive to apply. Typically, the promotional rate will last from a few months to nearly two years, after which the card’s standard variable rate will apply.

You can find your card’s APR in the Cardholder Agreement sent to you when you received your card or by calling the number on the back of your card and asking. When it comes to credit cards, APR and interest rates are interchangeable terms. For other types of loans, like mortgages and car loans, the APR is usually the interest rate plus additional fees like taxes and insurance.

Read more: Best 0% APR Balance Transfer Cards

How does interest work?

When you carry a balance from one billing cycle to the next, most credit cards charge interest using the average daily balance method. You can calculate your card’s daily interest rate by dividing the APR on your card by the 365 days of a year. Each day you carry a balance, if your card charges interest based on the average daily balance method, you will be charged based on the previous day’s balance. The higher your card’s APR, the more interest you’ll accrue each day.

For example, for a credit card with an APR of 17%, the rate per day would be 0.17/365, or 0.000466%. This daily interest rate is then multiplied by your balance on that day. Since the average daily balance is compounded each day, the calculation is based on the previous day.

So you have a balance of $10,000 on day 1, on day 2 your card would have a balance of $10,004.66, which is what you get when you multiply the balance of $10,000 by the daily rate of 0.000466 . This means that the balance of $10,004.66 on day 2 would also be subject to the daily rate of 0.0466%, which would bring your balance to $10,009.32 on day 3 and so on until the end of the day. billing cycle for that month.

However, if you pay your bill in full before the end of the month, you will not have any interest to pay.

Is there a grace period for card payments?

Most credit card companies allow a grace period of at least 21 days, sometimes even 30 days or more, to pay off your account balance. The grace period begins on the day your monthly statement closes, which is different from your card’s payment due date, usually later in the month. If you bank online, you will likely receive your statements as soon as they are issued. If you receive paper statements, it may take a few days.

By law, banks are required to provide a statement to customers at least 21 days before payment is due, but are not necessarily required to provide a grace period.

Why shouldn’t I carry a revolving balance?

Carrying a balance on a card usually loses the grace period. This means that if you don’t repay a monthly balance in full by the due date, you won’t have a grace period to repay transactions the following month. You will be charged interest on the outstanding balance, as well as on all transactions in the new statement period from the transaction date. In order to regain your interest-free grace period, try to pay off all your debts as quickly as possible. Depending on your cardholder’s agreement, it may take a few months for the grace period to be recovered.

To avoid carrying balances forward to future statement periods, do not wait for exact due dates to settle balances. If you can’t pay off your entire balance by the end of the month, pay as much as you can before the deadline and try to keep paying as often as possible, whatever amount you can. Even if your next due date is not later in the new statement month, if you have an outstanding balance, you will accrue interest each day of that month.

How can I avoid or reimburse interest charges?

You can usually avoid interest charges on your credit card altogether. The easiest way to never pay interest and maintain your monthly grace period between statements and payment due dates is to simply align your payments to all due dates, statement periods and the policies associated with your credit card. Never carry a balance and you’ll avoid interest altogether.

Align payment due dates

If you have multiple credit cards to pay each month, it may be possible to request a change to your statement and payment due dates. Usually these are set up at the time of opening a new account. Unfortunately, this means many cardholders have to juggle more than one statement period and pay for different cards at different times of the month. For some people, this can be beneficial depending on how each card is used and how they choose to fund each payment. For many of us, it can be simpler and easier to remember due dates if our banks align all of our statement periods to end at the same time each month.

Pay on time and in full

While it might make things easier to set payments on the same due date for multiple cards, that doesn’t mean you then have to ignore each of your credit card balances for the rest of the month. Paying down your balance in small amounts throughout the month, whenever possible, can help reduce your overall debt and help you stay mindful of your spending and habits.

Paying on time or even in advance can be advantageous for another reason: if you miss your payment due date and your balance is already reduced because you paid it earlier in the month, you you won’t have such a large balance. Since your interest is a percentage of the card balance, the smaller the balance carried forward, the smaller the daily interest dollar amount.

0% APR Cards

Many cards offer promotional periods with 0% APR and some of them offer the possibility to transfer an existing balance. Some people take this opportunity to buy time to pay off existing debt during the promotional period so they don’t continue to accrue interest. Balance transfers generally involve a fee of 3% to 5% of the transferred amount. It pays to do the math to make sure the amount you’ll pay in balance transfer fees is less than the interest you’re currently paying on your balance.

If for any reason you are unable to repay a transferred balance at the end of the promotional rate, you may lose the promotional rate of 0% interest. Be sure to confirm whether such a card offers the introductory rate of 0% APR for balance transfers only, or whether it also applies to purchases made on the card during the promotional period. While this only applies to Balance Transfers, you should read the Purchase Terms carefully to fully understand how the Card works.

Read more: Balance Transfer Calculator: How Much Can You Save With a Balance Transfer?

What if I can’t refund my credit card?

If you miss a payment date or are unable to fully repay a credit card due to financial hardship, you should contact your bank directly. Especially if you already have excellent or good credit, or if this is your first time not being able to make a payment on time, your credit card company may be willing to work with you. . Contact us before you miss a payment date if possible.

If you miss a payment due date but are able to repay the full amount soon after, you can sometimes request a refund of interest or late fees. If paying off the card seems like a longer process, you can also apply for a personal loan from many card companies – although in this case you’ll also want to keep the loan interest rate in mind and fully understand what terms will be different from those on your credit card.


Credit card compound interest rates mean that your balance can quickly become unmanageable. You can avoid paying interest by staying organized and sticking to your budget so you can meet billing cycle payment deadlines. If you have to carry over a balance, try to pay off whatever you can as soon as you can. Other solutions are to contact your lender and refinance an account balance with a balance transfer card.

Find the best credit cards for 2022

No credit card is the best option for every family, every purchase or every budget. We have selected the best credit cards so as to be the most useful for the greatest number of readers.


Comments are closed.