Credit Card Interest Free Period

he least favored part of owning a credit card for the customer is the payment of interest. However, a majority of credit cards include a feature wherein the credit card holders can repay their outstanding balance without any additional interest. This is the credit card interest free period. It is an obligation for the credit card issuers to provide at least 21 days between the card statement generation at the end of the billing cycle and the due date to pay off the outstanding balance. This window period is seen as a ‘grace period’ or credit card interest free period. Therefore, until this period has ended, the credit card issuer does not charge interest on the outstanding balance at the end of the billing cycle. 

The interest rate on credit card can convert a manageable outstanding balance to an extravagant amount. Therefore, to avoid getting debt ridden due to the use of credit cards, the user should pay off the outstanding balance within this credit card interest free period itself. If the user pays off the outstanding amount before the end of the credit card interest free period, they can continue transactions and purchases without the payment of any interest on it. The interest is not charged on the condition that the entire bill is repaid before or on the due date. However, if the card user does not do so, an interest rate of about 2-3% will be charged on the outstanding amount. Knowing more about the credit card interest free period can help card users escape default payments. It is important to point out that the cash advances are excluded from the interest free credit period and cash withdrawals will attract interest till the amount is repaid.

What is a Credit Card Interest Free Period?

The credit card interest free period in your credit card statement cycle is the grace period wherein you can make any transaction and purchase goods or services without being charged any interest for it. The credit card interest free period, however, can vary for different banks and can be set somewhere between 20 to 60 days depending on the credit card transaction date. A majority of the credit cards in India offer a credit card interest free period ranging somewhere between 20 to 60 days. This depends on the type of credit card being used by the credit card holder and varies from bank to bank. The credit card statement cycle is mostly about 30 days and the banks or financial institutions provide at least a 15 days period for the repayment. The addition of both these figures provides the credit card user with the maximum number of days they get the interest free credit period. To make the eligibility for the interest free period in credit card, the credit card holder has to pay off the total outstanding balance by the due date on every billing cycle. 

On the end of the credit card interest free period, the interest will accrue on both the unpaid outstanding balance and the new balance on the basis of the APR of the credit card. However, not all transactions can be afforded this benefit and cash withdrawal through the credit card is not a part of the credit card interest free period. The interest is levied from the day of the withdrawal till the repayment is done in full. Some major credit cards offer long credit card interest free periods while others may provide shorter interest free credit period.

How Does Credit Card Interest Free Period Work?

When the customer purchases something through a credit card, the amount spent should be repaid within a particular time period because it has been borrowed. The time period might be different for different financial institutions, but the maximum duration is usually of about 60 days. The repayment should be made within this period itself. To provide an example of the same, if the billing period of the credit card is around a month i.e. 31 days, and the purchase is made on November 1, the repayment without interest will have to be made on 25 December. However, if the purchase is made on any date after that, the payment date will remain the same. Therefore, it is important to pay attention to the billing cycle of the credit card to make repayments on time because the period varies in different banks.

Credit Card Interest Free Period

How is Credit Card Interest Free Period Calculated?

Although this period has been set by the bank and is known to the consumer, the actual number of days that the latter will enjoy the credit card interest free period depends on when the purchase is being made i.e. the date of the purchase. This is the reason why the number of days the interest period is valid is always preceded by the phrase ‘up to’, suggesting that it can go up to that many days but can remain below it too. For example, assume your credit card offers an interest free period pertaining to purchases for a period of 45 days. If the credit card user has already paid their total outstanding balance in full for the previous month, they will get a total of 45 days of interest free period in credit card for the purchases made on the first day of the billing cycle. The days go on decreasing as the cycle proceeds further. 

Interest Free Credit Period

This simply means that the earlier the purchase is made after the credit card statement generation, the more credit card interest free period days are enjoyed by the credit card owner.

Although this period has been set by the bank and is known to the consumer, the actual number of days that the latter will enjoy the credit card interest free period depends on when the purchase is being made i.e. the date of the purchase. This is the reason why the number of days the interest period is valid is always preceded by the phrase ‘up to’, suggesting that it can go up to that many days but can remain below it too. For example, assume your credit card offers an interest free period pertaining to purchases for a period of 45 days. If the credit card user has already paid their total outstanding balance in full for the previous month, they will get a total of 45 days of interest free period in credit card for the purchases made on the first day of the billing cycle. The days go on decreasing as the cycle proceeds further. This simply means that the earlier the purchase is made after the credit card statement generation, the more credit card interest free period days are enjoyed by the credit card owner.

How to Best Utilize the Credit Card Interest Free Period?

Provided below are the ways to utilize the credit card interest free period in an optimum manner to be favorable to credit card users.

  • Use more than one credit card to make transactions.

The people who own multiple credit cards can easily space out their major and expensive transactions among those credit cards which have different due dates and can make the  most of the credit card interest free period. To understand this in practice, let’s say that a credit card owner has two credit cards, the first one with a billing date of 4th of every month and the second one with a billing date of 19th every month. Therefore, keeping this in mind, the credit card user can make transactions on the first credit card between 5th and 19th every month and on the second credit card between 20th and 3rd every month. This helps the owner get the maximum possible interest free credit period from both the credit cards, covering the whole month. Apart from the credit card interest free period, they also get rewards and benefits on both the cards for the big ticket purchases. For this, it would be better to apply for a credit card with maximum benefits on expensive transactions.

  • Try to avoid cash withdrawals through the credit card.

Cash withdrawals do not come with a credit card interest free period like other transactions made through the credit card. On the other hand, the cash withdrawals made through ATMs using credit cards accrue interest charges from the day of the withdrawal itself. This interest is levied till the date of the full repayment of the withdrawn amount. In addition to this, cash withdrawals using credit cards also charge a cash advance fee which is calculated to about 3.5% of the amount withdrawn. For the above stated reasons, it would be better on the part of the credit card user to try to not withdraw cash using their credit cards and try to pay directly through card or make digital payments to avoid these extra charges. However, if the withdrawal is absolutely impossible to avoid, then the amount withdrawn should be returned as soon as possible so that the finance charges do not accumulate.

  • Complete big ticket purchases at the starting days of the billing period.

It would be beneficial for the credit card users to make major transactions at the initial days of the billing period itself. This is because it gives the credit card user around a full month to repay the amount back. Therefore, the credit card interest free period can be enjoyed by the credit card user and the amount can be put to better and productive use. For example, assume the billing period of the card starts from 6th of the month and the amount has to be repaid on the due date which is on 25th every month. If the big ticket purchase is made on . Therefore, if the purchase is made on October 7th, this would be included in the credit card statement generated on December 5th. Thus the repayment due date will be on December 25th. Therefore, this can be advantageous to the customer who enjoys the interest free period in credit card for more than a month. However, this will not be the case if the same transaction is carried out a bit later in the billing period at the end of the month. Therefore, whenever the credit card user anticipates the necessity of a major transaction through their credit card, it would be better to time the purchase in the initial days of the billing cycle itself.

  • Pay off the remaining outstanding balance on or before the due date.

If the repayment of the transactions made through the credit card is delayed beyond the due date, it might result in the credit card owner incurring finance charges at exorbitant rates of about 24-49 percent on an annual basis from the date of the transaction till the amount has been repaid. If the credit card owner does not even pay the minimum amount due on the due date, this will incur an additional charge of up to Rs 1300 for every billing cycle that goes by. The charge depends on the outstanding balance and the credit card issuer. Along with these additional penalties and charges, if the trend of non payment for a card account continues, the credit card interest free period for that account might be revoked by the credit card issuer till the total outstanding balance has been repaid by the credit card user. Therefore, it is better for the user to repay the total amount before the due date and avoid these issues. 

Conclusion

If the credit card user does not pay off the entire outstanding balance calculated and highlighted on the credit card statement before the end of the grace period or the credit card interest free period, it would imply that the interest free credit period would not be provided to the said user. This simply means that the current outstanding balance and the new balance of the credit card will both charge an interest immediately without any credit card interest free period. However, if the credit card user pays off the entire outstanding balance following this and makes full repayments for a few billing cycles after this, the credit card issuer may provide an interest free credit period to the user again. This will only happen if the credit card user does not carry any outstanding balance on their card account. Therefore, to avert paying the interest, the credit card user will have to repay their total outstanding balance once the credit card interest free period ends.