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What are credit card interest rates?
A credit card is a way to borrow money. You instantly pay for items with your card. You then get a monthly statement, which shows how much you owe. This usually includes interest.
The interest is the cost of borrowing money. It's a percentage of the money you've been lent, which you pay on top of what you've borrowed.
Types credit card interest rates?
- Purchase APR - This is the most common type of interest rate applied to everyday purchases made with your credit card. If you pay your balance in full by the due date each month, you can often avoid paying any interest on your purchases.
- Cash Advance APR - This is the interest rate applied to cash withdrawals made using your credit card. Cash advances typically come with higher APRs and do not have a grace period, meaning interest starts accruing immediately.
- Balance Transfer APR - This rate applies to balances transferred from one credit card to another. Many credit cards offer promotional balance transfer rates, such as 0% APR for a limited time, to attract new customers.
- Penalty APR - If you miss payments or violate the terms of your credit card agreement, your issuer may apply a penalty APR, which is often significantly higher than regular rates.
- Introductory or Promotional APR - Some credit cards offer a lower or even 0% introductory APR for a specific time period as a promotional incentive. After the promotional period ends, the standard APR takes effect.
6 things you should know about interest rates
- When you borrow on your credit card, your lender usually charges you interest.
- The interest is a percentage of the money you've borrowed. The higher the percentage, the more expensive.
- You won' t pay interest if you pay back everything you owe each month and you don't take cash out with your credit card.
- You could get up to 56 days' interest-free, when you pay in full (everything you owe) and on time.
- You need to pay at least the minimum amount each month on your statement (even if you have a 0% interest card). If you pay less than the full amount and don't have a 0% interest card, you’ll pay interest on everything you owe.
- Different credit cards have different interest rates. The rate you pay might also depend on your credit score. Get your free credit score.
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How do credit card interest rates work?
If you don't pay off all your statement balance (debt) each month, you'll pay interest.
Most credit cards offer a grace period – the time between the end of a billing cycle and the payment due date – during which you can pay off your balance without incurring any interest. However, the grace period typically applies only to new purchases, not cash advances or balance transfers. To benefit from the grace period, you must pay your balance in full by the due date.
So, how much could credit card interest cost?
Let's say, your credit card has an interest rate of 24.9% and your balance (debt) is £100. You'd be charged £2.08 in interest each month.
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What is APR?
APR stands for Annual Percentage Rate. It's the total cost of borrowing for a year.
That's because as well as the yearly interest rate, it includes standard fees, like any annual (yearly) fees.
When a loan is advertised with a representative APR, it means that at least 51% of customers receive a rate that is the same as, or lower than, the representative APR – although not everyone within the 51% will necessarily get the same rate.
As well as interest, you could pay fees
Here are some credit card fees you might have to pay on top of interest:
- Cash advance fees –if you get cash out with your credit card.
- Foreign transaction fees – some cards charge you if you use them abroad.
- Late payment fees – if you don't pay the lender back in time each month.
- Overlimit fees – you could be charged if you go over your agreed limit.
- Annual fees – some cards charge you a fee each year to have the card.
Want to learn more about fees?