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How does my credit card interest free period actually work?

Credit cards are popular products, and when managed wisely, can help optimise your budget. It’s essential however, to understand how credit card interest is charged and how interest-free periods work if you want to get the most from your credit card and avoid accumulating debt.

How is credit card interest calculated?

The credit card interest that applies to your particular credit card product is essentially the cost you pay to borrow the money (the credit) in the first place.   

If an interest-free period comes with your credit card product, it’s a set number of days in your statement cycle where you can purchase goods and services without being charged purchase interest. Statement cycles are generally monthly and this, combined with the additional number of days you are given to pay your balance, is the interest-free period. This varies between credit card products.

While this may sound straightforward, it’s a bit more complex, so keep reading to ensure you are aware of the pitfalls.

How is the credit card interest free period calculated?

The number of interest-free days you have to pay off each credit card purchase depends on when you make the purchase. It is essentially the maximum number of days you have interest-free once the first purchase is made in an interest-free period.

If your credit card has a 45-day interest-free period (in this instance, the statement cycle of 30 days plus 15 days) and you purchase something on day one, then you do have 45 days to pay the balance of that purchase without being charged interest. If you use your credit card to purchase another item later in the statement cycle, then you will only have the remaining days of that interest-free period to avoid being charged interest on that purchase. An example would be if you were to make a purchase on your credit card on day 40, you would only have five days left for your interest-free period.

Remember – you only get the 45 days interest free if you pay out the balance in full!

The golden rule of getting the most out of your credit card interest-free period is to pay your balance before the due date. Life gets busy sometimes, so the best way to stay on track is to put a reminder in your calendar so you don’t miss the due date.

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How do cash advances on a credit card work?

Cash advances in its simplest terms is withdrawing cash from a credit card; however, it can extend to other types on transactions too, including gambling or buying lotto.

Cash advances usually attract a higher interest rate on credit cards and it is important to remember that cash advances are charged interest from the day of the transaction. Customers with a P&N Bank credit card can see details of transactions considered cash advances in the Credit Card Conditions of Use (Sections 19.3 & 19.6).

What happens if I don’t pay my credit card balance in full by the due date?

If you DO miss the due date and don’t pay your credit card balance in full before the interest-free period ends, two things will happen:

  • You will be charged interest on the purchases you have made
  • You will lose your interest-free period for the next month; however, once your balance is paid your interest-free period will start again.

Another tip that could help you manage your credit card smartly is to consider only making any larger purchases at the start of your interest-free period. If you make these towards the end of the cycle, you could be putting yourself under greater pressure to pay your balance on time.

If for some reason you find yourself unable to pay your credit card balance in full, always make the minimum payment for that month to avoid late fees. If you are struggling to meet minimum repayments or have overdue bills you simply can’t pay, contact your creditors and billers as soon as possible to discuss payment options.

As always, being on top of your budget and spending habits is key.

To learn more about P&N Bank’s credit card products, visit our credit cards page or talk to one of our friendly team by calling our Contact Centre on 13 25 77.

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