Credit Card Interest Rates

How much interest will you pay per month on your credit card – and how can you avoid paying it altogether?

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Amy Bradney-George

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Key takeaways

  • Credit card interest rates vary based on the type of card, the provider and the current cash rate, but most of them are 20% p.a. or more.
  • You only pay interest if you don't pay the full outstanding balance by the due date each month. This interest will keep compounding each month, if you don't pay the balance in full.
  • If you're struggling to pay off your credit card, you might consider a 0% balance transfer card.

When you use a credit card, you're borrowing money from the lender, up to an approved credit limit. So just like any other loan, interest may be charged on the balance.

How and when this interest is charged will have a big impact on how much it will cost you to use your card.

How much interest will be charged on a credit card?

Interest rates are a fee that's charged when you borrow money. This means when you pay back what you owe, you actually end up paying more than what you've borrowed.

With credit cards, interest is usually calculated daily on the balance you owe and charged at the end of each statement period, while the interest rate is shown as an annual or per annum figure. For example, a card could have an interest rate of 11.99% p.a. (per annum) or 21.99% p.a.

Most credit cards charge different interest rates for different types of transactions, with the most common being one rate for purchases, and a higher rate for cash advances.

Can you avoid paying interest on credit cards?

Yes, you can avoid paying credit card interest by paying the statement balance in full each month. This is a much higher figure than the minimum due figure. Usually, the minimum due figure is about 2-3% of the outstanding balance, while the full balance is everything you spent during that statement period.

Here's an example of a real life statement. In this example, the minimum due is $106. But the statement balance is $5,252.08. To avoid paying interest, you need to repay that full amount of $5,252.08.

example of a credit card statement

Must read: Compound interest costs

The way credit card interest is charged is known as "compound interest", meaning you could end up paying interest on your previous interest charges. The good news is that you can cut down on interest costs any time you make a repayment, because that will also affect the daily interest calculation you owe in the future.

If you don't think you can repay the balance in full each month, you may want to consider a low interest credit card.

Types of credit card interest rates

  • Purchase interest rate. The interest you're charged when you use your credit card to make regular purchases and payments in retail outlets or online.
  • Cash advance interest rate. You'll be charged the cash advance rate when you use your credit card for withdrawing cash from ATMs or cash equivalent transactions.
  • Balance transfer interest rate. Charged on debt you move from an existing credit card to a new card. Many cards offer a low or 0% promotional rate on balance transfers for a set period, and some also charge a one-off balance transfer fee, which is separate from the interest rate.
  • Promotional interest rate. This promotional interest rate is only available for a limited time, with the standard interest rate applying after that. For example, a card may offer you 0% interest on balance transfers for the first 12 months. If you didn't pay off the balance transfer during the first 12 months, the standard rate for balance transfers would apply to the debt.

Even the smallest difference in credit card interest rates can have a huge impact on your account costs. So when you're looking for a new card, make sure you compare both the standard and promotional interest rates to help you find one that suits your needs.

Why is credit card interest so high?

Credit card interest rates are high because for the lender, they carry more risk than secured loans. When they give you access to a credit card with a $5,000 limit, they are giving you access to spend that money on anything you like with virtually no restrictions, and there's no asset attached to it that they could "repossess" if you don't repay the debt.

This is why credit cards are typically more expensive than car loans (attached to a car) or a home loan (secured by a property).

How to compare credit card interest rates

To show you how important it is to compare interest rates, let’s say you have a balance of $1,000 on a credit card with an interest rate of 20.99% p.a. If you only made monthly payments of $50 on this debt, it would take you around 2 years to pay off your balance and cost you about $212 in interest.

On a credit card with an interest rate of 15.99% p.a., it would still take around 2 years to pay off your balance but would cost you $153 in interest. That’s a saving of $59 compared to the card with a higher rate, which is basically another monthly repayment. The bigger the difference in rates, the greater these potential savings would be.

Credit card repayment and interest calculator

You can use this calculator to figure out how much you're paying on your current card, how much you could save with a low rate card, or how to plan your repayments and save yourself the most money.

*Whilst every effort has been made to ensure the accuracy of this calculator, the results should only be used as an indication. They are neither a recommendation nor an eligibility test for any product and should not be construed as financial advice, investment advice or any other sort of advice.

How are payments allocated on credit cards?

The simple answer is that your repayments will go towards the balance attracting the highest interest first. So if you've made a cash advance which attracts a higher fee, any payment you make would go towards reducing this first. If you have a $200 cash advance and make a $300 payment, then the extra $100 will go towards the next highest interest balance, and so on.

For example, your payment would apply in the following order:

  • First: Cash advance (21.99% p.a.)
  • Second: Any spending (17.99% p.a.)
  • Third: Balance transfer (promotional 0% p.a.)

If you only have 1 interest rate for your entire balance (say, if you've only used it for purchases), you can use our calculator to figure out how long it would take you to pay off your credit card debt for your chosen monthly repayment.

A brief background on credit card payment allocation

The current payment hierarchy system has been in place since 1 July 2012, following credit card reforms. Previously, repayments would go towards the most recent transaction instead of the highest interest balance.

Two other important reforms were introduced at the same time:

  • A ban on over-limit fees, unless you agree to them.
  • A notification when you go over your credit limit.

Finder survey: How often do Australians pay off their credit card in full?

Response
Every month71.32%
Most months12.5%
About half the time6.62%
Rarely6.62%
Never2.94%
Source: Finder survey by Pure Profile of 1113 Australians, December 2023

What else do I need to know?

As well as interest rates, make sure you consider the following when you're looking for a new credit card:

  • Interest-free days. Many credit cards offer up to a certain number of interest-free days on purchases when you pay your account balance in full by the due date on your statement. For example, up to 55 days interest-free. This gives you a way to avoid interest charges for spending on your credit card.
  • Annual fee. Most credit cards charge an annual fee, which could also add to your account balance. Remember to factor this cost in when you're comparing credit cards and also when you're budgeting for interest costs and repayments.
  • Other features. Many credit cards offer complimentary extras such as insurance or rewards, which could help offset the cost of the annual fee and interest charges. Just remember to weigh the value of the benefits against potential costs so you can decide if a card is worth it based on your spending habits and goals.

Frequently asked questions

What does APR mean?

APR is the acronym for Annual Percentage Rate, which is the standard way of expressing the cost of credit as an annual percentage.

What is an interest charge?

An interest charge refers to the interest fee you'll have to pay on your credit card account. This can be in the form of a purchase interest rate, cash advance interest rate or balance transfer interest rate and is calculated as a percentage of what you owe.

How do I get a competitive interest rate?

Compare your options. Use the table on this page to see Finder's selection of low rate credit cards, check out some reviews and find the right deal for you. If you've already got a credit card and you're paying too much interest, consider a balance transfer credit card.

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Amy is an experienced journalist with over 16 years of experience, contributing to major publications like Money Magazine, The Sydney Morning Herald, and ABC News Australia. Specialising in personal finance, she frequently appeared in media outlets and on radio. Amy holds a Bachelor of Arts in Journalism and Drama from Griffith University and earned RG146 certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, ensuring her expertise is grounded in current financial regulations. Amy was Finder's Senior Writer for Credit Cards from 2016 to 2024. See full bio

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2 Responses

    Karu's avatar
    KaruMay 26, 2013

    I have a Diamond MasterCard. My balance is $2700. I have paid $2500 on due date but charged $160. Is it correct? Why has this happened?

      Jacob's avatarFinder
      JacobMay 26, 2013Finder

      Hi Karu. It’s difficult to speculate why you’ve been charged this fee. Best to consult your credit card statement when it next arrives, or you can check your online banking facility to see why you’ve been charged this fee. If you let us know the name of the fee, we can offer some insight into why it has been charged, how to avoid it in the future, and maybe how to dispute it with the lender. Jacob.

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