Interest on a credit card typically starts to accrue if the cardholder does not pay the full statement balance by the due date. Purchases have an interest-free grace period from the statement closing date until the payment due date, usually about 21 days. Interest is charged only if the balance is carried beyond this due date. However, cash advances and balance transfers generally start accruing interest immediately from the transaction date, as they usually do not have a grace period. Interest accrues daily based on the daily periodic rate derived from the card's annual percentage rate (APR) and is added to the balance each day of the billing cycle until paid in full.
Key points about when interest accrues:
- For purchases, interest accrues only if the full statement balance is not paid by the due date after the grace period.
- For cash advances, interest begins immediately on the date of the advance.
- If carrying a balance, interest compounds daily based on the average daily balance.
- Paying only the minimum payment avoids late fees but does not stop interest accrual on the remaining balance.
- The grace period typically lasts from the statement closing date to the payment due date (about 21 days).
This means that if the full payment is made by the due date, no interest is charged on purchases, but interest charges will appear if the balance is carried forward.
