Credit Card Interest Fees 101

Credit cards come with all kinds of fees, from authorized user fees and foreign transaction fees to annual fees and overlimit fees. But today, we’re concerning ourselves with interest fees. Interest fees are one of the most common credit card fees out there – they also happen to be the most expensive. We dive into all things credit card interest fees below. 

Credit card interest fees by transaction type

Depending on how you use (or misuse) your credit card, you may be responsible for paying hefty interest fees. Interest fees can be accrued on a wide range of transactions, from purchases and cash advances to balance transfers. It’s important to note that interest rates on credit cards are typically much higher than on other types of loans, like mortgages, car loans, or personal lines of credit. For this reason, avoiding interest fees is crucial. In some cases, credit card interest fees can be as high as 19.99% on purchases and even higher on unpaid cash advances and balance transfers. Ultimately, if you cannot afford to pay your credit card bill each month, you should expect to find expensive interest charges on your next bill. Below, we break down credit card interest fees by transaction type. 

Interest fees on purchases

Interest fees on purchases are the interest charged on unpaid balances when you’ve used your credit card to pay for goods and services. Interest on purchases begins accumulating after the grace period runs out and dates back to the day the purchase was made. Credit card grace periods vary but typically fall between 21 and 55 days. Interest fees for unpaid credit card balances for purchases are typically around 19.99%. However, if you have a low-interest credit card, they may be lower (10-12%). 

Interest fees on cash advances

Interest fees on cash advances are charged when you use your credit card to withdraw cash. Unlike interest fees on purchases, interest fees on cash advances start accumulating the moment you make the transaction. Cash advance interest fees are usually higher than interest fees on purchases, averaging between 21.99 and 24.99%. 

Interest fees on balance transfers 

Lastly, when you transfer your credit card balance from one card to another, interest will be charged. Specifically, interest is charged on the new card you transferred your balance to and starts accumulating that same day. Interest rates for balance transfers are also higher than on purchases, typically falling around 21.99%. That said, some credit cards have promotional offers where the interest fees on balance transfers might be 0% for a specified period. 

Tips to avoid credit card interest fees

To avoid credit card interest fees, follow the tips below:

  • Don’t charge more than you can afford to your credit card: Be careful not to swipe your credit card for more than you can reasonably afford to pay back by the end of your grace period. 
  • Review your monthly statements: To avoid paying credit card interest fees, keep a close eye on your monthly credit card statement. Pay close attention to the due date for each billing cycle. Even if you can afford to make your payment, many people simply forget to make the payment only to discover the due date has passed and they’ve been charged interest. As soon as you open a credit card, check your monthly due date and set a reminder on your phone or computer. 

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