How credit card interest works

The interest-free period decides everything

Before any arithmetic: if you clear your full statement balance by the due date, most UK cards charge no interest on purchases.

The window between the statement being issued and the payment falling due — commonly around 20 to 25 days, on top of the up-to-31-day statement cycle — is the interest-free period. Pay in full within it and your APR is a number you never meet.

Everything below applies only once you carry a balance.

How the charge is worked out

Interest accrues daily on the balance outstanding each day, at a daily rate derived from your APR, and is added to your account at the end of the statement period. Because that interest then forms part of the balance, a carried debt compounds.

Daily interest = balance that day × (APR ÷ 365)

A practical consequence: when you pay matters. A £500 payment early in the cycle reduces the balance for the remaining three weeks. The same payment on the due date reduces it for a couple of days. Both clear the same debt; the first costs less.

The credit card interest calculator shows the effect of daily accrual against the simpler monthly convention on the same APR.

The minimum payment

For credit card agreements entered into on or after 1 April 2011, FCA rules require the minimum repayment to be at least that month's interest, fees and charges, plus 1% of the outstanding balance. Many issuers set a floor of £5 or £25 as well, whichever is greater.

That rule guarantees the balance goes down each month. It guarantees very little else.

Because the minimum falls as the balance falls, paying only the minimum stretches a payoff over many years and costs more in interest than the original debt on a high-rate card. Your statement is required to carry a warning to this effect — it is worth reading once.

The different rates on one card

Cash withdrawals are the expensive one: a fee, a higher rate, and interest from day one. Cash machines also report card withdrawals to your credit file, and lenders read frequent card cash withdrawals as a sign of difficulty.

0% deals

0% on purchases — no interest on new spending for a set number of months. Genuinely free credit if you clear the balance before it ends.

0% on balance transfers — no interest on debt moved from another card, usually with a transfer fee of a few percent of the amount moved. Divide the balance by the number of 0% months: if that monthly figure is not affordable, you will still be carrying a balance when the rate reverts.

In both cases you must still make the minimum payment every month. Miss one and the issuer can withdraw the 0% deal entirely.

Section 75

A specifically UK protection worth knowing.

Under section 75 of the Consumer Credit Act 1974, where you pay for something on a credit card and it costs more than £100 and no more than £30,000, the card issuer is jointly and severally liable with the retailer for breach of contract or misrepresentation.

In practice: if the retailer goes bust, does not deliver, or the goods are not as described, you can claim from the card issuer directly. It applies to the whole purchase price even if you only paid part of it on the card.

This is a genuine reason to put a significant purchase — a flight, a sofa, building work — on a credit card and clear it immediately, rather than paying by debit card. Debit card purchases get chargeback instead, which is a scheme rule rather than a statutory right and is weaker.

If you are struggling

FCA rules require lenders to treat customers in financial difficulty fairly. Contact your issuer before missing a payment — options include reduced payments and suspended interest.

Free debt advice is available from MoneyHelper, Citizens Advice, StepChange and National Debtline. None of them charges, and none of them will ask you to stop paying your creditors as a first step.