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There is a lot of confusion about how the interest-free period works on a credit card.
While credit cards advertise 55 days free of interest, that is the maximum interest-free period you can get, and it all depends on how you use your card.
About 85% of cardholders get zero days free of interest.
The first thing you should know is that if you do not pay the debt on your card in full on the due date, interest is charged from the date of purchase, so you effectively lose the benefit of that interest-free period.
Considering that only 15% of South Africans pay their credit cards in full each month, most don’t benefit from the interest saving.
You also need to keep in mind the cut-off period as the 55-day interest-free period is the maximum you can benefit and depends when in the billing cycle you make the purchase.
For example: March 1 to March 31 is the billing period. Any expenses incurred during this period are interest-free if you pay the full amount owing (purchases between these dates) by April 24.
In other words, if you make a purchase on March 1, you effectively have until April 24 to pay for it – 55 days interest-free. But if you make the purchase on March 31, you only receive 24 days interest-free.
If you make a purchase with your credit card on April 1, this will fall into the next billing cycle, which is payable on May 24.
So, if you want to make a big purchase and benefit from the free interest period, make sure you understand your billing cut-off date as you’ll want to make the purchase on the first day of the new cycle.
Also make sure you pay it off in full on the payment date, otherwise you pay interest right back to day one.
The following transactions do not qualify for interest-free periods and incur charges from day one:
- Cash withdrawals from your credit card;
- Gambling charges; and
- Transferring amounts from your credit card to another credit card or bank account.
