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How do credit card interest-free days actually work?

Whether you’re new to the game, or you’ve been swiping your credit card for years, I think we can all agree that the whole ‘interest-free period’ thing can be totally discombobulating! Which is why we’ve put together this guide for you! So you can walk away knowing what credit card interest-free days are and how they work.

But before we get into the nuts and bolts of credit card interest-free days, first let's have a quick refresher on the basics.

What is credit card interest?

Credit card interest is the price you pay to borrow money from your credit card provider represented as an annual percentage rate. You didn’t think the bank would just lend you their money for free, did you?

There are a couple of different types of rates to be familiar with:

  • Purchase rate: The interest rate you’ll need to pay on credit card purchases if you don’t pay them off before the due date. 
  • Cash advance rate: When you withdraw cash with your credit card you’ll incur a high cash advance rate, which is usually a minimum of 20% and sometimes as high as 29.49%. Interest-free periods don’t apply for cash advances, so you’ll be charged interest from the day you make the cash advance until the day you clear your credit card balance.
  • Balance transfer rate: You might choose to clear old credit card debt with a balance transfer offer on your new credit card. The balance transfer rate is the interest rate you’ll pay on the balance you transfer from an old credit card to the new card and usually sits at 0%.
  • Revert rate: The revert rate refers to the new interest rate you’ll be charged on credit card purchases after the introductory or special offer period has ended. Depending on the type of offer, the revert rate is generally quite high, so be sure to check this rate when choosing your new credit card.

What are interest-free days?

You'd think with a name like ‘interest-free days’ this one would be pretty self-explanatory. And it is, to a point. But unfortunately, rules around credit card interest-free days can get a little tricky, so, allow us to clear up any confusion.

An interest-free period is a set number of days (usually either 44 or 55 days) in which any new credit card purchases you make will not incur any interest charges. It starts at the beginning of your statement period, and you’ll get the same number of interest-free days each statement period, as long as you pay your balance in full by the due date each month. Make sense?

Ok, but how do interest-free days work?

Here's where people tend to get confused. You don't necessarily have the same amount of interest-free days to pay off each credit card purchase. It works like this:

If you purchase something on the first day of the interest-free period, you'll have the maximum number of interest-free days to pay off your credit card balance to avoid incurring any interest charges. On the other hand, if you make a purchase halfway through the interest-free period, you will only half the amount of time to pay the balance and avoid interest charges.

How many interest-free days do I have?

A common misconception is that you’ll have 44 or 55 interest-free days to pay off each purchase starting from when you make each purchase. In fact, the amount of interest-free days you have is determined by when you make a purchase.

Here’s an example:

Your new credit card has 44 interest-free days. On day 1 of your credit card statement period, you go out and buy a new set of $200 headphones. To avoid being charged interest on the headphones, you’ll have 44 days to pay off your credit card balance (within the 44-day interest-free period).

On the 26th day of your credit card statement period, you splurge on a new pair of $300 shoes. Because you bought them on the 26th day of the credit card statement period, you’ll only have 18 interest-free days left to pay this purchase off without being charged interest.

Keep in mind, that if you have a balance transfer as part of an offer, the interest-free period usually won’t apply, however, be sure to check the PDS as this can vary between providers. A few providers have recently changed their credit card offers to allow for a 0% interest on balance transfers as well as an interest-free period on purchases.

What happens if I don’t repay my credit card balance in full?

If you don’t pay your entire credit card balance before the interest-free period ends:
You’re charged interest on purchases you’ve already made

  • You lose your interest-free days for the next month
  • This is why it’s easy to get into debt.

How to get your interest-free days back:

Once you’ve lost your interest-free period, you can regain it by paying your account balance in full, in which case your new interest-free period would start on the day that you pay your credit card balance.

How can I take advantage of my interest-free period?

As you can see, interest-free periods can be quite confusing, but super rewarding if you know how they work. Here are some tips on how you can take advantage of your credit card’s interest-free period and avoid paying interest on your purchases.

  • Always pay your credit card balance before the due date: Some credit card providers send alert notifications to remind you to pay your credit card balance before the due date, however, you could always set a reminder in your phone or calendar yourself.
  • Plan your spending: When possible, plan your credit card purchases to ensure you give yourself as much time to pay it off as possible before the due date. Avoid making big purchases towards the end of your interest-free period.

Should I choose a low interest rate credit card or a high interest rate credit card?

If you're tossing up between a low rate credit card or rewards card with high interest, it’s useful to understand how interest-free days impact that.

  • If you keep on top of credit card repayments: It won't matter if the card you're after has a high-interest rate, because you’ll never have to pay any interest.
  • If you're someone who is often late to make repayments: Then you'd probably be better off with a low-rate credit card in order to reduce the amount of interest you pay.

On the hunt for a new piece of plastic? Check out our low rate credit card comparison table to find one that’s right for you! While you’re at it, have a read through some of our credit card guides, so you know what to look for. Happy swiping!

Rhianna Dews
Rhianna Dews
Senior Money Writer

Rhianna has a Master of Journalism and Communication from UNSW, and has contributed to several consumer publications including TechRadar, Simply Living Australia, Beauty News Australia, Beauty World News and Fashion Gone Rogue. With over eight years of experience helping consumers make the most of their money, and a background in creating content for brands including Foxtel and Vodafone, means she's always the first to know the latest consumer trends. Her focus is on millennial money motivation and helping Aussies make smart money moves in personal loans, credit cards and online shopping.