Interest Free Days Credit Cards
When using a credit card, it’s best to avoid interest wherever possible if you want to keep costs down. Cash advances, for example are best avoided, as they typically attract a higher rate of interest, with interest applied from the day they are made. So, what about purchases? There's not much point having a credit card if you can't use it to pay for stuff. But, that doesn’t mean you have to pay interest for the pleasure of doing so.
Which is where a card’s interest free period comes in. Most cards designed for personal use offer a number of interest free days on purchases. This gives you a certain period of time between when the purchase is made and when the payment is due when interest isn’t applied. By understanding how this interest free period works, you can manage your cash flow more effectively, while avoiding paying any interest at all.
Interest Free Days vs. Interest Free Intro Offers
Before we go any further, it’s worth pointing out that there is a difference between interest free days and interest free introductory offers.
With an interest free introductory offer, you will pay no interest on any purchases made within the card’s introductory period. So, for example, if you have a 0% purchase offer offered over 12 months, you will pay no interest on your purchases for that entire 12 month period. After the intro period is up, any balance left unpaid will revert to the card’s purchase rate.
With interest free days, these are offered as standard on most cards – to be used throughout the life of the card. As long as you don’t have a balance transfer or a carried-over balance on your account, you can benefit from a certain number of interest free days on your purchases. But, you must pay your closing balance by the due date to take advantage of this feature month-to-month.
Credit Card Interest 101
Now to credit card interest. While we won’t go into too much detail regarding how interest is applied, it’s worth covering the basics.
When you use your credit card, you are essentially borrowing money from your card provider to cover the purchase you are making. Interest is the cost your card provider charges for providing this service.
How credit card interest is calculated can vary according to the card provider, but for the most part, interest is calculated from the day each transaction is made, up until the day it is repaid in full (unless an interest free period comes into play).
At the end of the statement period, interest is calculated by averaging the amount borrowed each day, and then multiplying that amount by the rate set out in your card’s terms. Interest charges are calculated separately for purchases, cash advances and balance transfers.
Breaking it down, your card provider will:
• Average the balance over the statement period,
Interest Free Days
So, now we know more about how interest works on a credit card, let’s look at how you can avoid paying interest using your card’s interest free days.
Your statement period will typically run for 30 days. If you have a card that offers ‘up to 55 days’ interest free on purchases, you will have 25 days between when your statement period ends and when your payment for that statement period is due.
The number of interest free days you can benefit from will vary according to the day you make the purchase. The maximum number of interest free days in this case is 55, while the minimum number of interest free days is 25.
Let’s look at an example of how that might work.
On June 1, Patrick uses his card to buy a TV for $1,500. As this is day 1 of his card’s statement period, Patrick now has 55 days before payment is due on the card, during which period no interest will be applied.
On June 15, Patrick uses his card to buy a pair of jeans for $120. He has 40 days interest free on this purchase.
On June 30, Patrick’s statement period ends and he receives his statement. He now has 25 days to pay off his closing balance to clear all purchases made during this period. In this case, his closing balance is $1,620.
July 25 is Patrick’s payment due date. To avoid paying interest on the purchases he’s made, he must pay the entire closing balance. If he doesn’t, he won’t have any interest free days going forward (until he pays off what he owes), and interest on his current balance will be charged from the day he purchased the TV.
What You Need To Know About Interest Free Days
Interest free days are not available when you carry a balance over from a previous month, or when you have a balance transfer on your account.
If you miss out on interest free days one month, you can still enjoy them next month as long as you clear your balance and then pay next month’s closing balance by the statement due date.
Interest free days are only applied to purchases. Cash advances attract interest from the day they are made.
The number of interest free days you get on each purchase depends on which day during the statement period the purchase is made.
Making The Most Of Interest Free Days
While credit cards tend to sell themselves on much more exciting perks, that doesn’t make their interest free feature any less important. While it may not upgrade you to business class or provide you a relaxing sojourn in the airport lounge, it does give you the opportunity to avoid interest month to month, potentially saving you hundreds, if not thousands of dollars depending on your spend.
Want to make your interest free days work for you? Here’s where to start.
|Step 1. Choose the right card. First and foremost, compare the options to choose the right card. Take into account what you need from a card, then find the card that suits your needs and your budget. Look at how many interest free days your card offers. While some options offer no interest free days, most range between 44 and 55 days. |
Step 2. Read the small print. While it’s always important to read the small print before you apply, it’s a good idea to check over the important bits again before you start using the card. This includes finding out exactly how your card deals with interest free days. Check when your statement period starts and ends, and how long you have before your payment is due.
Step 3. Plan your purchases. If you know you need to make a larger purchase, it can be a good idea to do it at the start of your statement period, as that will give you longer before your payment is due. You can always track your purchases using your card’s app so that you know where you stand and how much you owe.
Step 4. Always pay off your balance. If you want to take advantage of your card’s interest free days, the most important thing to remember is to pay your closing balance by the due date each month. If you are unable to do that once in a while, at least make your minimum repayment.
When you’re able, clear your balance to get back on track with your interest free days. You don’t need to wait until your next statement due date to do this, you can do it at any time. The sooner you do pay off your balance, the sooner that balance stops accruing interest, which should save you money in the long run.