Interest charge on purchases refers to the money that credit cardholders have to pay when they carry a balance on their account month-to-month.
In this article, we’re going to share everything you need to know about interest charges and answer common questions we receive on the topic.
This article is part of our free series on US credit cards, including how to get a US credit card with an ITIN number, which you can access here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Interest Charge on Purchases
- Interest Charges on Credit Cards
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Interest Charge on Purchases
An interest charge on purchases refers to the total interest a credit card issuer applies to the outstanding balance on a credit card each billing cycle. Cardholders that pay the minimum payment on their credit card each month, will incur interest charges.
That said, interest charges are not the only finance charges that cardholders should be aware of. If the minimum payment is made prior to the grace period expiring, a late payment fee will also apply.
Additionally, credit card issuers typically charge significantly higher fees and a higher annual percentage rate (APR) on cash withdrawals and purchases of money orders.
Not surprisingly, it’s important to consider all of the terms and conditions related to each credit card prior to deciding which card to obtain. This can include an assessment of an introductory rate offer, the ability to complete a balance transfer, the credit limit, or other promotional offers that can make one credit card more attractive than the other options available to you based on your creditworthiness.
Interest Charges on Credit Cards
Interest charges on credit cards refer to the monthly charge that credit card issuers apply on the outstanding balance cardholders carry month-to-month.
In short, when the cardholder does not pay the total balance on their card, the remaining balance is credit provided to them by the credit card company.
Like other credit products, such as loans, lines of credit, and mortgages, the lender (credit card company) will charge interest on the outstanding amount.
How Do I Know My Interest Rate on My Credit Card?
You can confirm the interest rate on your credit card in a few different ways, which we’ll share below:
First you can review a recent credit card statement, which will list the applied interest rate that is charged on the outstanding balance of the card.
Second, you can review your online credit card account, which will list the interest rate.
Next, you can review your credit card agreement, which you would have received from the card provider at the time that the card was issued.
Lastly, if you no longer have your credit card agreement and don’t have access to monthly statements or online banking, you can contact your credit card issuer directly to confirm.
Is It Possible to Avoid an Interest Charge on Business Cards?
Yes, it is possible to avoid an interest charge on business cards. To do so, the business (or the responsible cardholder) must pay off the total balance of the credit card prior to the statement balance due date. If the business card’s balance is not paid off prior to the statement due date, then interest charge will be applied to the outstanding balance on the card.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into an interest charge on purchases. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Why Did I Get an Interest Charge on Purchases?
You may have received an interest charge on your purchases if you are carrying a balance on your credit card, withdrew cash from your credit card, have incurred penalties from your credit card provider, or missed a payment deadline.
How Do You Avoid Interest Charges on Purchases?
To avoid interest charges on purchases you simply need to pay off the total balance on your credit card prior to the statement due date. By paying off the total balance prior to the statement due date, there will be no balance to have interest applied to. If you always have sufficient funds in your bank account to pay the monthly credit card statement balance, you can set up automatic payments to ensure you never pay interest charges on purchases.
Why Am I Getting Charged Interest on My Credit Card?
If you are getting charged interest on your credit card, it is likely because you have a balance on your card. In other words, you did not pay off the total balance of the card. As a result, the balance being carried on the card has interest applied.
Why Did I Get a Purchase Interest Charge After Paying Balance?
You may get a purchase interest charge after paying the balance if you did not pay soon enough. Many credit card companies require a certain period of time to process a payment. So, if you pay on the due date, it is possible the payment did not register. This would result in interest being charged.
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