How Do Interest Free Period Credit Cards Work?

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Interest free periods are like continual monthly 0% deals, except they never end and come as standard on all credit cards!

When you use a credit card, you pay for goods or services 'on credit' - the bonus here is that if you repay your spending in full at the end of each month you'll never be charged interest for the privilege of paying by credit card.

What is an interest free period?

An interest free period is the time between statements in which you can make use of the credit facility on your credit card without being charged any interest.

Interest free periods are offered by all credit cards. However, to benefit from this period of free credit, you are required to repay your credit card balance in full and on time each month.

Interest free periods generally allow 3 weeks from the date of your statement in which to repay the balance in full.

What if I don't repay my credit card balance in full?

If you choose not to repay your credit card balance in full, you will waiver the benefit of the interest free period and any transactions on your account will incur interest charges.

The main downside to not clearing your credit card balance in full - aside from racking up debt - is that interest will then be charged from the date of transaction until repaid in full.

If you do not repay your credit card balance in full one month, you may waive next month's interest free period too - as many credit cards state that to benefit from the free period of credit you must repay this month's and last month's statement balance in full.

Do all credit cards offer an interest free period?

Yes, all credit cards come with an interest free period.

Do interest free periods differ in any way?

The length of the interest free period does vary between credit cards, while the majority of cards offer an interest free period of up to 56 days, some credit cards offer longer - up to 59 days - or shorter free credit periods.

Interest free periods can also differ in terms of what transactions are included in the free credit period.

Usually, credit cards only include purchase transactions as part of their interest free period. Which means, if you use your credit card to withdraw cash for example, that transaction will incur interest charges until repaid even if you clear your balance in full.

However, there are credit cards available that include cash transactions as well as purchases in their interest free periods - which is something to look out for if you tend to use your credit card for accessing cash or buying foreign currency.

How can I make the most out of my interest free period?

A longer interest free period means you have that much more time to pay off your credit card balance in full without being charged any interest.

By clearing your balance in full each before the end of the interest free period will mean that you won't be charged any interest for using your credit card for purchases - and possibly cash transactions.

To make the most out of your interest free period, pay your balance near the end of the interest free period, so you can earn more interest on money in your current account.

• Tip: Make your credit card payment near the end of the interest free period, but not on the last day, as it may take up to 5 working days to credit your account.

• Tip: Remember to budget your income so that you can pay off your credit card balance each month.

What should I look for when choosing an interest free period credit card?

When comparing interest free period credit cards here are some of the main points to consider:

1. How long is the interest free period? A longer interest free period will give you that much longer to pay off your balance in full without being charged any interest on purchases.
• Tip: Interest free periods are quoted in two ways, "from transaction date" or "from statement date". To enable a comparison between the two, add 31 days to interest free periods quoted "from statement date".
  
  Explanation:
• "from transaction date", means from the first day of the current statement month.
• "from statement date", means from the date the statement is issued, or the last day of the current statement month.


2. How much is the interest rate, or typical APR on purchases? Choose a card with a good typical APR for those months when you do carry a balance over.
3. If you're switching cards, does it offer a good balance transfer deal? Some credit cards offer promotional balance transfer deals, allowing you to transfer an existing card balance and benefit from either fixed low rates or 0% rates. Read more about balance transfers.
4. Is there an annual fee, and if so, how much is it? Some credit cards charge an annual fee just for carrying the card.
5. How are payments made to the card applied? When you make a payment to a credit card there is an ‘allocation of payments’, which states in what order balances will be cleared.
• Tip: If payments made to the card are applied first to promotional balances, you will have to clear these lower rate balances before you can begin to repay any purchases and / or cash withdrawals.

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