When you use a credit card to buy goods and services, you’re borrowing money from a lender. While most credit cards have monthly interest-free periods (typically 45 or 55 days from the beginning of each month’s billing cycle) in which to repay these debts without accruing extra costs, once these periods expire, you’ll start being charged interest on what you owe at the purchase rate.
It’s important to remember that the purchase rate won’t necessarily apply to all interest charges on your credit card.
Low rate credit cards
Some credit card providers offer low purchase rates as introductory offers when you sign up for one of their cards. These rates can be as low as 0%, allowing you to use the card to make interest-free purchases during the course of the introductory period. But once this introductory period expires, the interest rate will revert to the standard purchase rate, and you’ll start being charged interest on any outstanding balances.
Balance transfer credit cards
If you’re considering switching from one credit card to another, you may want to consider the balance transfer rate. Several credit cards charge no interest on any balance you transfer from your old card to the new one, for a limited period of time. This may help you to repay what you owe without accruing additional interest charges. However, once the introductory period expires, you’ll be charged interest on your remaining transferred balance at the card’s balance transfer rate, which is often higher than the purchase rate.
Cash advances
If you use your credit card to make a cash advance (i.e. getting money out from an ATM using your credit card), you’ll likely be charged interest on this debt at a separate cash advance interest rate, which is often higher than the everyday purchase rate, as many lenders consider cash advances to be relatively risky. It’s also likely you’ll be charged interest on cash advances immediately, without the benefit of the interest-free days that may apply to your credit card purchases.