How Credit Card Interest is Calculated
Quick Facts:
- Interest is calculated daily, charged monthly
- Average NZ credit card interest rate: 19.95%
- Interest-free periods typically 44-55 days
- Different rates for purchases vs cash advances
Understanding Credit Card Interest
Credit card interest is the cost of borrowing money through your credit card. It's important to understand how it's calculated to manage your finances effectively.
Types of Credit Card Interest
Purchase Interest
- Applied to regular purchases
- Interest-free period available
- Lower rate than cash advances
Cash Advance Interest
- Higher interest rate
- No interest-free period
- Charged from transaction date
How Interest is Calculated
Daily Interest Calculation
- Convert annual rate to daily rate (APR ÷ 365)
- Multiply daily rate by daily balance
- Add up daily charges for monthly total
Interest-Free Periods Explained
Most NZ credit cards offer interest-free periods on purchases:
- Typically 44-55 days
- Starts from beginning of statement period
- Only applies if you pay full balance
- Doesn't apply to cash advances
Minimizing Interest Charges
Tips to Avoid Interest
- Pay full balance during interest-free period
- Set up automatic payments
- Avoid cash advances
- Consider balance transfer offers
- Choose low-rate cards if carrying balance
Interest Rate Comparison
| Card Type | Purchase Rate | Cash Advance |
|---|---|---|
| Low Rate Cards | 12.95% - 13.95% | 21.95% - 22.95% |
| Rewards Cards | 19.95% - 20.95% | 22.95% - 24.95% |
| Standard Cards | 16.95% - 18.95% | 21.95% - 22.95% |