When you think of credit card interest rates, you’re probably thinking of the purchase rate – the interest you’ll need to pay on typical credit card purchases, made in-store or online.
When you use a credit card to buy goods and services, you’re borrowing money from the lender. While most credit cards have monthly interest-free periods (45 and 55 days from the start of each month’s billing cycle is common) 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 same purchase rate won’t necessarily apply to all interest charges on your credit card.
Some credit card providers offer low purchase rates as introductory offers when you sign up for one of their cards. These rates can go as low as 0%, allowing you to use the card to make interest-free purchases over 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 your purchases.
If you’re swapping 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 can 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 card’s purchase rate.
Using your credit card to make cash advances (e.g. 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. You’ll also often start being charged interest on your cash advances immediately, without the benefit of the interest free days that may apply to your credit card purchases.