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How does credit card interest work?

Knowing how your credit card interest is calculated and when it’s charged can help you manage your repayments and avoid paying unnecessary interest.

Credit card interest is a charge for borrowing money from a financial institution with your credit card. How much interest you’ll pay depends on the type of card you have, the transactions you make, and when you make repayments. 

Calculating credit card interest

How your credit card interest is calculated may vary depending on who you bank with. At CommBank, we calculate interest from the day each purchase is made up until it's repaid in full. This applies to all purchases unless you're eligible for an interest-free period. (We explain interest-free periods below.)

We calculate interest at the end of each statement period by averaging the amount you borrowed each day and using the rates set out in your contract.

To work out your interest charges, we calculate interest separately for: 

For each of these categories, we follow these steps: 

  1. Average the balances over the statement period 
  2. Multiply the average balance by the applicable daily interest rate (annual rate divided by 365)
  3. Multiply the above amount by the number of days in the statement period 

If you have a balance transfer or instalment plan, the interest rate we use will be shown when you apply. Applicable interest charges and interest rates can also be found on your monthly credit card statement. 

Interest-free periods on purchases

Most CommBank credit cards come with an interest-free period on purchases of up to 44 or up to 55 days, meaning you won’t be charged any interest on purchases, so long as you pay your closing balance in full by the due date every month.

graph on how to keep your interest-free period

Download example*

When interest is charged

If you don’t pay your closing balance in full by the due date – that is, if you only pay the minimum amount shown on your statement, make a partial payment, or don’t pay on time  – you will be charged interest and lose your interest-free period. 

If you lose your interest-free period, we’ll charge interest on the unpaid balance from the day after the payment due date shown on your statement, until you repay in full. Losing your interest-free period means that any new purchases you make will incur interest from the day you make them until they're paid off.  

Graph of how to keep your interest-free period

Download example#

Some transactions don't have interest-free periods

Some types of transactions have no interest-free period, which means they accrue interest from the day they are made until they are repaid in full. With CommBank credit cards, this includes: 

  • Cash advance transactions such as ATM withdrawals, money transfers and transactions considered equivalent to cash (like traveller’s cheques)
  • Balance transfers (you don’t need to pay this off to get an interest-free period on other purchases)
  • SurePay® instalment plans

Similarly, some credit cards have no interest-free periods (such as CommBank Business Low Rate credit cards). All transactions on these cards accrue interest from the day you make the transaction until they're paid off.  

How to stop paying interest

Interest is charged to your account on the last day of your statement period. 

The easiest way to avoid paying interest is to always pay your statement’s closing balance on time, and not make any cash advances.

If you've been paying interest on purchases, you can regain your interest-free period by:

  • Paying your account balance in full to get interest-free on all purchases from that day.1 This is everything you owe up until today, including any purchases you’ve made since your last statement.2
  • Paying your closing balance in full by the due date shown on your statement to get interest-free on new purchases in your next statement period. This is the amount you owe from your last statement period. 
graph on how to regain your interest-free period

Download example^

Remember, you don’t need to wait until the due date to pay off your credit card. The sooner you pay off everything you owe, the less interest you’ll need to pay. When you pay your account balance in full, it’s important to remember that there may still be interest owing. Your next statement will include any interest accrued from the start of your statement period up until the time we receive the payment. 

Reduce the interest you pay

Here are a few other tips to help you minimise interest:

  • Pay off as much as you can every month, as soon as you can -- don't wait for the due date
  • Set up automatic payments to pay off your credit card with AutoPay
  • Only use your credit card to pay for things you can afford to pay back
  • Consider transferring part or all of your balance into a SurePay® instalment plan to pay off your debt in monthly repayments
  • Set a spending cap so you know how much you have available to spend each month, without permanently decreasing your limit
  • Block ATM cash advances using features like Lock, Block, Limit® or apply a gambling cash block on all cash transactions

On top of the payable interest, you may also be charged a late payment fee, and your credit score may be impacted if you don’t pay at least the minimum amount shown on your statement by the due date.  

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This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.

1 Please note: sometimes we don’t receive payments in time to process them the same day as you make them, for instance when you transfer from another bank, which may affect this.

2 Your account balance does not include any pending transactions.

* The example is for illustrative purposes only and assumes you’ve paid your closing balance in full by the due date in previous statement periods to be eligible for an interest-free period on purchases, and you can continue to do so to maintain your interest-free period.

# The example is for illustrative purposes only and assumes you’ve paid your closing balance in full by the due date in your previous statement period to be eligible for an interest-free period on purchases.

^ The example is for illustrative purposes only and assumes you have not paid your closing balance in full by the due date in your previous statement period.