Your credit card’s interest-free period, explained
Interest-free days are the closest you’ll get to free money with a credit card: Here’s how they work.
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Most credit cards offer you interest-free days for new purchases, giving you a way to borrow money for "up to" a set number of days without paying interest. To take advantage of the interest-free period, you usually have to pay your credit card balance in full by the due date on your statement.
But credit card companies profit from interest, so why would they offer this feature? Read on to find out what interest-free days are, how they're calculated and what you need to know to make the most of them and save yourself some money.
What's in this guide?
- What does "interest-free days" mean?
- Answers to the most common questions about interest-free days
- Compare 55 days interest-free credit cards
- What else do I need to know when using a credit card with interest-free days?
- Diagram: How do interest-free days work?
- More questions about credit card interest-free periods
What does "interest-free days" mean?
Interest-free days give you a period of time when you can make purchases without being charged interest during your credit card billing cycle. Interest-free days begin on the first day of your statement period and end on the payment due date. For example, if you made a purchase on day 1 of a statement period, you could have 55 days to pay it off before interest is applied to the balance. A purchase made on the second day of that statement period would give you 54 days interest-free, and a purchase made on day 30 would give you 25 days to pay it off before interest is charged.
Other key definitions you need to knowWhen you're learning about interest-free days, you'll often come across a number of other terms that relate to this feature. Here are three major ones to take note of:
- Statement period/billing cycle. The statement period usually runs for 30 days, or from when your last statement was issued to when the next one is issued. With interest-free days, this is the time when you can make purchases and avoid interest.
- Statement issue date. This is the date on which the bank issues your monthly credit card statement.
- Payment due date. The date by which you must pay the balance to avoid late charges/fees. If you want to get interest-free days, you'll usually have to pay your full balance by this date.
- Purchase rate. The interest rate charged on purchases. Interest-free days help you avoid this cost.
Answers to the most common questions about interest-free days
How do I receive interest-free days?
To be eligible to receive interest-free days, you must repay your account's outstanding balance in full by the due date on your statement. Usually, you'll need to pay the full balance for the statement that you got before the start of that billing cycle, as well as the statement issued at the end of it.
Why does it always say "up to 55 days"?
The amount of interest-free days available varies depending on what day of your billing cycle you make the purchase. While you would get 55 days interest-free on purchases made on the first day of the billing cycle, you'd get 54 on the second day and only 1 day interest-free if you made a purchase the day before your statement was issued for that billing period. So "up to" is used to refer to the maximum amount of days you can get interest-free in your billing period.
Can I make interest-free purchases with a balance transfer credit card?
If you want to pay off existing debt with a 0% balance transfer offer, be aware that it could affect the interest-free period for new purchases. Some credit cards only offer interest-free days for purchases when you pay the account's entire closing balance, including any balance transfer debt. Others let you make interest-free purchases when you have a balance transfer, as long as you pay the entire purchase balance for your statement – and may even list that balance on your statement. For example, NAB has an "interest-free days payment" amount that you can pay to still get interest-free days while you carry a balance transfer debt, while Westpac has a "Monthly Payment Balance" that shows the amount you need to pay to get interest-free days on purchases.
Is a credit card with interest-free days suitable for me?
If you pay off your credit card balance in full by the due date each month, a card with interest-free days will allow you to make purchases without paying interest. This could be ideal if you use a credit card to earn rewards or for short-term cash flow such as spending between monthly paydays. You could also use it as an alternative to other buy now, pay later services. But if you think you might not be able to pay the account’s closing balance in full each month, you may like to consider low interest rate credit cards and 0% purchase offer credit cards.
Compare 55 days interest-free credit cards
What else do I need to know when using a credit card with interest-free days?
You can use a credit card with interest-free days to save on your account costs when you meet specific requirements. Here are the key details to keep in mind so you can make use of your interest-free days:
- Minimum monthly payments. You usually can't get interest-free days for purchases if you only pay the minimum amount required on your statement, as most credit cards only offer this benefit when you pay your balance in full by the due date.
- Eligible purchases. Interest-free days are only available for "eligible purchases" made on your card. While this usually includes everyday spending at the supermarket, petrol station, restaurants and so on, exclusions typically apply for cash advance transactions, government payments and some bill payments. Check with your credit card provider for details on what is considered an "eligible purchase" for your card.
- Dates vary. Don’t expect all your credit cards to come with similar billing cycle dates and dues dates. These dates can vary from one card to the next, even when issued by the same card issuer.
- Instalment plans. If you set up an instalment plan for part of your credit card balance, you will usually have to pay the required instalment repayment, as well as the rest of your monthly account balance, to remain eligible for interest-free days. These details will usually be shown on your credit card statement, as well as your provider's website. If you're unsure, contact your provider to check whether you can still get interest-free days when you have an instalment plan.
Example: Making use of interest-free days
Let’s assume you have a credit card that offers 55 interest-free days and its billing cycle begins on the 1st of each month and ends on the 30th. Given the 55 interest-free days, the due date on your credit card statement would be the 25th of next month. So if you were making purchases in June, here's how it would look:
- 1st June. First day of the statement
- 30th June. Last day of the statement
- 25th July. Due date of your payment for June
In this case, the 55 interest-free days begin on 1st June and end on the 25th of July when your payment is due. So here's how your interest-free period would work as you make purchases throughout the month:
- You make a $200 purchase on 1st June. You don’t have to pay any interest towards this purchase until 25th July, which gives you 55 interest-free days.
- You make a $100 purchase on 20th June. This is the 20th day of your billing cycle, so you don’t have to pay any interest towards the purchase until 25th July. This means you get 35 interest-free days.
- You make a $150 purchase on 30th June. This is the last day of your billing cycle but the purchase won't attract any interest until 25th July, giving you an interest-free period of 25 days.
When you're statement is issued for June, you'll owe $450. So as long as you pay this in full by the 25th July, you won't be charged interest on your purchases and can continue to enjoy interest-free days for the next billing cycle.
Diagram: How do interest-free days work?
Interest-free days can be tricky to visualise, so you can see this handy diagram to understand how it works. As well as showing the interest-free period (in green), we also show when purchases are made, when the statement is issued and what happens if you pay less than the full amount for a billing cycle (the middle one in this case).
Credit cards that come with 55 interest-free days give you the ability to make purchases and not pay any interest towards them as long as you make timely repayments. Such cards can come with a number of other features as well, so it’s important that you choose a card as per your requirement. Bear in mind that just about every credit card issuer provides cards with interest-free days on purchases, so it is in your most interest to compare as many as possible before making a decision.
More questions about credit card interest-free periods
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