Credit Card Interest: When you pay it and when you don’t

Withdrawing cash using your credit card

Cash withdrawals, or cash advance, using a credit card attract interest, right from when the
withdrawal is made. There is no grace period, and banks also levy a cash withdrawal fee,
making this one of the most expensive uses of a credit card.

Making new purchases when old dues are unpaid

A lesser-known trigger is making new purchases while carrying an old balance. In such
cases, the interest-free period doesn’t apply to fresh transactions, which begin accruing
interest immediately.

Making minimum due payments

Interest also applies when only the minimum amount due or a partial payment is made. The
unpaid balance continues to accrue interest until it is fully repaid, which can add up to a
significant amount over time.

Missing due date for payment

If outstanding balance is not settled by the due date, interest is charged on it. Late payment
fees may also apply. Repeated delays can not only add to your debt and affect your credit
score, but in some cases, may even lead to changes in card terms.

End of promotion on balance transfers

Balance transfers often come with promotional interest-free offers. But such offers usually
come with an expiry date. Once the promotion period ends, interest is charged on unpaid
balance, usually at regular rates.

When interest isn’t charged

Balance cleared in full by due date

Interest is not charged when the full outstanding amount is paid by the due date. This
preserves the interest-free period on purchases made during the billing cycle.

Reversed or cancelled transactions

Refunds for reversed or cancelled transactions don’t attract interest, as long as they are
adjusted within the billing cycle and no balance is carried forward.

Purchases during the grace period

Regular retail transactions also don’t attract interest during the grace period. However, this
applies only if there is no unpaid balance from earlier months. To retain this benefit, clear
your bill in full each month.

Interest-free promotional offers

Interest is also not charged on transactions covered under valid promotional offers, such as
zero-interest EMI schemes or introductory balance transfer offers. However, following the
offer terms and timeline is key to enjoy the intended benefit.

Used correctly, credit cards offer flexibility without cost. But used carelessly, they can
become an expensive form of credit. The key to avoiding the latter is in knowing when
interest applies and acting before it does.