How does an interest-free credit card work?
Interest-free days can be a confusing feature, with the exact interest-free period generally undisclosed by banks. In this guide we will break down and simplify how to receive interest-free days.
Credit card interest-free days provide you with a period of purchasing with zero interest.
Explanation of terms before we go further into explaining this credit card feature:
- Statement issue date/ billing cycle. The date which the bank will issue your monthly credit card statement to your email/ address.
- Payment due date. The date which you must pay the balance by to avoid late charges/ fees.
- Purchase rate. The interest rate charged on purchases.
Answers to the most common questions about interest-free days
How do I receive interest-free days?
To receive interest-free days you must repay your account's outstanding balance in full in the previous month.
What does 55 interest-free days mean?
The ideal way to illustrate this is through an example. 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:
- 1st June - First day of the statement
- 30th June - Last day of the statement
- 25th July - Due date of your payment for June
These 55 interest-free days begin from the first day of the statement, that is, 1st June, and end on the due date, that is 25th July.
Does this mean I will get 55 interest-free days for every purchase I make?
Unfortunately, the answer to this is no, and taking the previous example a little further can help illustrate the same:
- 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, and you don’t have to pay any interest towards it until 25th July. In this instance, you get 35 interest-free days.
- You make a $150 purchase on 30th June, and this purchase does not attract any interest until 25th July. Here, you get 25 interest-free days.
Why does it always say "Up to 55 days"?
You can make a purchase at just about any time in between your credit card’s billing cycle, and the day you make your purchase on has a bearing on the number of interest-free days in respect to that particular purchase. This could vary from 55 days to 24 or 25 days, depending on your card’s billing and due dates.
With the example discussed above, while the purchase you make on 30th June gives you 25 interest-free days, if you were to make a purchase on 1st July, it would enter the next billing cycle, giving you until 25th August to make the payment.
Is a credit card with interest free days suitable for me?
If you don’t pay your account’s closing balance in full by the following due date you no longer have the privilege of interest-free days, which essentially means you’ll have to start paying interest. As long as you clear your outstanding balance in full each month, you don’t have to worry, and you can keep using the interest-free days on offer.
How do interest-free days work? - Diagram explanation
Please refer to the explanation and diagram we have provided below for more information on how this credit card feature works.
Compare 55 days interest-free credit cards
55 days interest-free period credit card - Video explanation
Click here for video transcript
Hi, I’m Fred Schebesta. I’m here to explain to you what does up to 55 days interest-free actually means on your c redit card. The first thing is, I want to talk about 55 days. Now, 55 days here, there’s actually a little line that goes before that and it says ‘up to 55 days interest-free.’ Now when it says up to, what that mean is, is that it’s up to potentially the date that your statement arrives.
Now I’ve got a bit of a diagram that I want to explain it to you in some concepts. Now the first thing is, you’re not going to get interest-free days if you have a balance. If you have a balance, you just can’t get interest-free days, it doesn’t work that way.
The other thing is that, some cards offer potentially 44 days interest-free or some have actually no interest-free days, so it’s worth checking your card and comparing. When it comes down to it, this core concept of, ‘when is your payment due’. When your payment is due, this is when you have interest-free days up to. So I want to take you through an example here. Now, what I’ve drawn out here is a diagram where we have month one, month two and month three. And let’s just say that you get your statement on the 30th of the month. So we’ve just said here that we have three different statement dates. let’s pretend, on the first day of the month, on potentially on this seventh day of the month, you make a purchase. On that day, you will have 23 days interest-free, and let’s say you have a 55 days interest-free card, you will get another 25 days interest-free. So in total, this purchase on the seventh will actually give you 48 days interest-free. This here is your actual payment due date, and that is when you must clear your balance to keep getting interest-free days.
Let’s just say for example, you were to make a purchase on the very last day of the month, say on the 30th here, obviously it’s the last day of the month, you would only get the 25 days interest-free. So you can see it’s all about when is your payment due date and when is your statement date.
Now the next one is a little bit of a more intense concept - I just want to take you through this. Say you were to make a purchase, here, on the 8th day of the month. Now that purchase there, would not be due on your payment due date, but instead you will get the interest-free days, so the 22 days here, and the 25 days here, on the payment due date. On the 8th, you will get 47 days interest-free. So it’s all about when is your statement, when do you make a purchase and when is your payment due date. Remember, you must clear your balance on your payment due date, otherwise these purchases here will not get interest-free days. So, it’s important to compare if you have interest-free days, and you can do that at https://www.finder.com.au, and I hope that’s helped you out with your 55 days interest-free.
What should I be wary of when using a credit card with an interest-free days offer?
Using a credit card with interest-free days on purchases can be good if you know exactly what you’re doing. Here are some of aspects you should consider:
- Making minimum monthly payments. If you’re planning to make no more than minimum monthly payments towards your credit card, know that you won’t get any interest-free days at all.
- Cash advances. If you use your credit card to withdraw cash, know that you have to pay interest on the same from day one. Interest-free days don’t apply on cash advances.
- 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.
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 Frequently Asked Questions about interest-free period credit cards
What is the maximum number of interest-free days I can get?
With Australian credit cards that offer interest-free days, the maximum interest-free days you can take advantage of usually vary in between 44 and 55, depending on the card you use.
Do additional cards also get interest-free days?
Additional cards linked to your primary card follow the same billing cycle as the primary card, and offer just as many interest-free days on purchases.
I can’t pay my account’s closing balance in full this month, but I can in the future. Will I ever get interest-free days again?
Once you start paying your account’s closing balance in full each month again, you can start making use of interest-free days on purchases.