Do you have to pay interest on credit cards?

Whether or not you’ll pay interest on your credit card will depend on both the lender and how you use your card.

When used responsibly, a credit card can help you spread the cost of your spending. But is there a price to pay for this convenience? In this blog, we take a look. 

Interest – what does it even mean?

Before we talk about whether you’ll pay interest, it’s important to know what we mean by this term.

Put simply, the interest rate refers to the amount lenders will charge you to borrow money, and it will be included on your monthly statement.

"'APR' refers to the total annual cost of spending on the card."

You’ll usually see credit cards advertised with an APR (Annual Percentage Rate). This refers to the total annual cost of spending on the card including the interest and any other charges like arrangement fees.

By highlighting the rate you’ll pay, it’s simple to  compare lenders and products easily.

Do I have to pay interest?

Well, this will depend on, firstly, how you pay it off and, secondly, the type of card and offer you have.

When you spend with your credit card, your lender will send you a statement each month detailing the amount you owe.

You’ll be given a grace period – usually around 30 days from receiving the statement – and providing you clear your balance in full within this window, you won’t have to pay any interest. By doing this, you can borrow with your credit card free of charge.

If, on the other hand, you don’t clear your full balance, your lender will charge you interest. What’s left of your balance will roll over month by month until you pay it off, and you’ll pay interest with each payment - plus you’ll be charged interest on the interest (known as residual interest).

What about 0% cards?  

If you are accepted for a 0% interest credit card, you will not pay interest for a set amount of time. This interest-free period means you won’t be charged interest for this time even if you don’t clear your balance in full each month, as long as you pay at least the minimum payment.

Typically, lenders reserve these 0% introductory offers for those with a good credit history. If you have a patchy credit history, it’s likely that you will not be accepted for this type of card. But of course, this will depend on the lender and their own criteria.

Will I get the rate advertised?

When you apply for a credit card, you are not automatically accepted for the interest rate advertised.

A representative APR means that lenders only have to offer the advertised rate to just over half of their customers. This means that there’s no guarantee you’ll be offered this, and you might be offered a higher rate.

"The best APR rates are offered to customers with a good credit history."

And like with 0% interest credit cards, the best APR rates are offered to customers with a good credit history. This is why it’s important to weigh up your options and not jump at the lowest APR you see advertised – you might not get it.

Once you have a credit card, it’s vital that you keep up with at least your agreed monthly minimum payment. If you pay anything less than the minimum payment each month, your credit history will be affected.  

You should also keep in mind that interest can quickly stack up. If you can afford to do so, clear the balance in full each month to avoid paying anything more than you need to.