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How to Evaluate your Credit Card Interest on Purchases

What is Credit Card Interest on Purchases?

Credit Card Interest can be defined as the primary way in which credit card issuing companies generate their revenues. The interest is charged for providing credit. All credit card accounts have a yearly or annual percentage rate also called the credit card interest rate. The APR (annual percentage rate) differs from product to product and dissimilar rates are applied to various types of transactions. For example, different products have different purchase rates and cash rates or sometimes there are special rates for balance transfers. All of this is added in the accounts monthly collective balance to calculate the interest charge.

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There are four categories of Interests charged by banks

Purchase Interest

It is charged on purchases such as food items from the supermarket, direct debit such as insurance premiums or bill payments.

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Cash Interest

It is charged on fund transfers to other accounts using telephone banking or internet banking, on cash transactions such as ATM withdrawals and bills paid over the counter at the post office or bank.

Special Interest

It is charged on a balance transfer amount from one banks credit card to another.

Interest on Interest

It is charged on interest charges that are shown on an account statement which are unpaid and are generated from the above mentioned categories.

Calculation of Credit Card Interest on Purchases

Credit card interest on purchases is calculated at the end of the statement period and is charged to the account on the last day of each period. The bank starts working out the ADB or average daily balance over the statement period.

Interest Free Period

This is a feature that some credit cards offer, which provides the credit card holders with opportunities to avoid paying interest on purchase transactions, by fully paying the specified payment on the due date of each month. If a credit card has interest free period, then no interest will be charged on purchases if the closing balance has been paid for previous statement by the payment due date. The maximum interest free period provided by a low rate credit card is 55 days. If a credit card has an interest free period then the credit card interest on purchases and cash transactions will be charged after the end of the statement period.

Zero percent Credit card interest on Purchases

Some banks offer very low credit card interest rates on purchases, often 0% for buying merchandise in stores contracted with or owned by the lender. Such credit cards that offer ‘zero interest’ allow participating retailers to produce more sales by encouraging consumers to purchase more on credit. These offers are complex at times requiring the card owner to fully understand the terms and conditions of the offer.


Usually credit cards have different and dissimilar interest rates from merchants as compared to direct withdrawal of cash. The interest rates advertised by the companies are mostly the purchase interest rates. The cash interest rates are much higher almost 10% more. The general interest rate on purchase is 18% but if the card holder takes a long time for paying off the balance, then it might turn into an expensive way of borrowing.

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