What are my credit cards' interest free days?

justin schamotta
By Justin Schamotta

visa, mastercard©iStock.com/oztasbc

"I have a 56 day interest free period on my credit card.

Does that mean I have to pay the whole balance off before my statement is due or can I pay when I receive my statement?"

Credit cardholders should always have time to receive their statement and then make a full payment, repaying the whole balance, within the interest free period.

A grace period

To avoid interest, any outstanding balance must be paid off on or before the last day of a credit card's interest free period (commonly the 56th day).

To make this clear, let's imagine that Pete's credit card bill covers the period from the 1st of January up until the 31st of January.

Pete has 56 days interest free so the credit card bill will be due on the 25th of February (31 + 25 = 56 days).

If he pays back everything he spent in January before the 25th, he won't pay any interest on the purchases credited to the account during the statement period (1st to 31st of January).

Think of it as a grace period for credit cardholders and for providers: it means that the bill can be slow to arrive or the customer (a little) late to repay without the amount attracting interest.

A common error

A common misconception is that each purchase gets its own 56 days without interest.

That's not the case. In the example above, a purchase made on the 15th would get 41 days and a purchase made on the 30th would get 26 days.

56 days: just an example

Additionally, of course, not all credit cards offer up to 56 days interest free.

Some offer much shorter periods than this, for example 14 days after the statement to pay it back in full (a 45 day interest free period).

Check individual credit card terms for exact periods.

When the balance isn't repaid in full

You may have noticed that, in the preceding section, we noted several times that a credit card bill paid in the interest free period will only be free when it is paid off in full.

This is important.

When a credit card bill is not paid off in full during the interest free period the balance will attract interest from the day of each transaction until repayment is made (see this article for more on how payments are allocated).

You don't have to clear particular purchase amounts in full to reduce interest, any reduction in the principle will have an effect.

For example, if you pay back £10 of an owing balance of £100, you'll only be charged interest on £90 once the £10 is credited onto your account.

However, reducing the balance by degrees in this way can lead to a slight complication - known as residual interest - when paying the balance in full.

Residual interest

When a credit card balance is accruing interest nothing can stop it. Not even, immediately, the cardholder paying the balance in full.

Let's say you have a £300 balance gaining interest at a rate of about 50p a day. You pay the £300 and don't use the card but there are still 10 days until the end of the billing cycle.

Result? A £5 balance (50p x 10 days = £5) left on the account.

This, often unexpected, cost is known as trailing or residual interest.

To avoid it either:

If you want to avoid interest altogether - for example, because residual interest is only a risk because a 0% deal ends in the middle of a billing cycle - pay in full during the prior billing cycle if possible.

Other ways to pay interest

Additionally, interest free periods generally only apply to purchases - so any cash transaction or balance transfer will still incur interest charges.

Transactions classed as cash transactions (and balance transfers outside of 0% periods) will start accruing interest from the moment the cardholder takes cash from an ATM or buys foreign currency, one of the many reasons to avoid doing either with a credit card.

The types of transactions included in interest free periods are listed in credit card terms and conditions. Some, though not many, do include cash transactions, for example.

0% interest free period offers

Finally, standard interest free periods are not to be confused with 'introductory' interest free periods, also known as 0% purchase deals (see here), which offer 0% interest on purchases for an introductory period, with the leading deals offering up to 15 months or so.

These deals work differently, as the interest rate is 0% as opposed to a full payment waiving the charges of a standard interest rate.

With introductory interest free periods, the minimum repayment (explained here) specified in the card's terms is still required each month.

However, it's always a good idea to pay more than this, in order to clear any transactions before the promotional period ends and the standard interest rate starts to apply.

In terms of standard interest free periods and when interest begins, we've covered what happens at the end of a 0% period in more detail here.

How to never pay interest

There are two relatively simple ways to stop paying interest on credit cards:

  1. Only ever use the credit card for purchases: that is goods or services from retailers or companies. Transactions to avoid include withdrawing money at the ATM, buying foreign currency or traveller's cheques, gambling including online and at a casino (including food and drink) and money transfers.
  2. Set up a direct debit to repay the whole balance: while it's not always logistically helpful to be automatically clearing a credit card in full each month - it is certainly a way to avoid overspending on credit and to help avoid ever forgetting a repayment as well. It's a particularly sensible approach when using credit cards such as those offering cash back or rewards, to make sure the rewards are worthwhile.

Comments

1
24 June 2013
John Kelly

I have taken out a new card and I have used the 0% balance transfer facility but I have a 0% on transactions available as well. If I made a transaction can I make the payment back to only clear the transaction in full and not effect the balance transfer?

6 August 2016
Morgan Dalton

This is a good question, did you ever get an answer? Important as I have 0% on my balance transfer for a longer period than I have 0% on transactions.

16 June 2017
Pasquale

All credit cards providers prioritise your payment based on interest then age. For example:
If you have a £1000 balance made of a 0% interest balance transfer (transaction made in Jan 2017) and a 10% purchase balance of £500 (transaction made in March 2017); any payment you make will first cover your purchase balance as its interest rate is the highest, then will start to cover your 0% as soon as your purchase balance goes to 0 (if you make a payment of £600 you will end up with a final balance of £400 made of 0% 'transfer balance')... Even though this transaction was made before your purchases.
Instead, if both of your balances (transfer & purchase) have the same interest rate, the older transaction gets covered first by your payment... So if you pay £600 you will end up with £400 made of purchase balance.
I hope this answers your question.

2
1 August 2012
Pluskao

This is the kind of information people require whilst trying to understand how to beat credit card providers and make the most of their credit cards. Thank you! Brilliant, limpid and helpful article.

3
11 October 2011
Joe

Great article, I understand how the 45-59 days interest free works. But I have a new credit card and the balance is (and always has been £0) so how can I take advantage of this? Or what would be the minimum amount of interest free days at any given time?

Thanks in advance :-)


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