What is interest?
Interest is the fee paid for the privilege of borrowing money.
When you own a credit card, purchases made using the card are subjected to a standard interest rate called the Annual Percentage Rate or APR.
This interest rate varies from card to card as well as from person to person, depending on various factors, such as credit scores.
What you need to know about interest on credit cards:
When you own a credit card, you get to enjoy the benefit of being able to make purchases even when you don’t have access to cash. You can make large purchases and pay them off over a set period of time. In exchange for this benefit, you have a responsibility to pay your credit card balance off every month.
Keep in mind that these days, most credit cards compound interest on a daily basis, not monthly.
Compound interest has a big impact on how credit card interest works. For instance, carrying a balance on your credit card can be very costly. This is why you need to pay your credit card balance off every month.
Most credit card companies give their clients a grace period of about a month to pay the balance. As a client, if you choose to pay only the minimum payment due, you’ll have to start paying interest on the remaining balance.
Another factor to keep in mind is that if you don’t pay your credit card bill on time, your credit card company can increase your interest rate.
So the interest that you pay on your credit cards is dependent on your payment history, your credit score and your credit limit to some extent.
Interest on credit cards is known to be considerably higher than other types of loans, so it’ll be in your best interest (literally) to pay off your balances in full!