Credit card interest rates
When you use a credit card, you’re borrowing money from the provider.
This usually involves paying interest – which is basically what the provider charges you for borrowing the money.
You may be charged different credit card interest rates for certain types of transactions. These include everyday purchases, transferring a balance from another credit card or transferring money from your credit card to a current account.
Let’s look at how credit card interest rates work in more detail.
Estimated read time: 6 mins
Types of credit card interest rate
Depending on how you use your card, you can be charged different interest rates for different things. Here are a few of the different credit card interest rates and terms you might come across:
Purchase rate
This is the rate charged when you use your credit card to pay for goods and services. For example, paying for your grocery shop or new clothes, or buying something on Amazon.
These are known as purchase transactions and you’re charged a purchase rate on these by your card provider.
Sometimes you might be offered an introductory or promotional interest rate on purchases (e.g. 0% for 6 months).
Balance transfer rate
If you move a balance from another credit card, this is the interest rate you’ll be charged on that balance. You may also need to pay a transfer fee – usually a percentage of the amount you transfer.
Sometimes you might be offered an introductory or promotional interest rate on balance transfers (e.g. 0% for 12 months).
Money transfer rate
This is the interest rate you’re charged if you move money from your credit card to your current account. Like a balance transfer, you may need to pay a transfer fee when you do this.
Cash transaction rate
Cash transactions usually include cash withdrawals (both sterling and foreign currency) and buying foreign currency. Other transactions classed as ‘cash’ can vary by provider. For example, at Vanquis, money transfers are classed as cash transactions too.
Introductory/promotional rate
This is where your card provider gives you a 0% or low interest rate for a specific number of months.
It may be an introductory rate offered to new customers or a promotional rate offered to existing customers.
The introductory/promotional rate will often only apply to certain transactions. For example, 0% on balance transfers for 12 months, 0% on purchases for 6 months.
At the end of the introductory/promotional rate period, you’ll then be charged at your standard interest rate on these transactions and any outstanding balances.
Penalty rate (penalty APR)
Some credit card providers may charge you a higher rate on your account if you make late payments or miss them. The rate would be higher than your standard rate.
If you miss payments, another way the card provider may apply a penalty is by removing an introductory or promotional rate you may be benefitting from (for example, a 0% APR for a set number of months).
Effective annual rate
The effective annual rate takes into account interest you will pay on interest if you don’t pay the full balance on your statement each month. So it gives a truer picture of the cost of the credit.
Tips for paying less credit card interest
The key to cutting the amount of credit card interest you’re charged is to pay more than the minimum payment each month or pay your balance off in full – if you can afford to.
Remember, you need to pay at least the minimum as late payments will incur fees and can affect your credit score. Want to know more? Read our guide to credit card charges and fees.
Here’s a look at different ways to reduce credit card interest:
Paying off your balance in full each month
If you can afford to, it’s beneficial to pay your full statement balance each month. You’re only charged interest on the balance that’s left after your payment due date. So if you pay off in full, there’s nothing for the provider to charge interest on.
Take a look at the different ways to pay a Vanquis Credit Card.
Setting up a Direct Debit
Direct Debit payments are automatically taken, so you don’t have to remember to make them each month. If you set up a Direct Debit to take your credit card payment, you’ll always make the payment on time.
You can usually set up a Direct Debit for your minimum payment, a fixed amount or percentage of your balance, or the full statement balance each month.
The more your Direct Debit is set up to pay, the less interest you’ll be charged.
Making one-off payments
Your card provider will let you make extra payments at any time to help reduce your balance.
So, if you have times where you have a little extra cash that could go towards clearing your credit card balance, this will help reduce the amount of interest you’re charged.
Anything you can pay on top of your minimum payment each month can make a difference.
There are different ways to make a payment if you have a Vanquis Credit Card.
Transferring a balance to another credit card
This is an option if you already have a balance on a card that you’re paying interest on. You may be able to find a credit card that offers a lower interest rate or even 0% for a number of months.
If you transfer a balance from a credit card with a higher rate to one with a lower rate, you’ll save interest. Bear in mind you’ll likely need to pay a fee to do this, so make sure you factor that in.
Vanquis Balance Transfer Credit Card
The Vanquis Balance Transfer Credit Card lets you move your debt from one or more credit cards to our card with a 0% interest period. There’s a balance transfer fee of up to 3.9%.
Check if you’ll get accepted without affecting your credit score.
Representative 36.9% APR (variable)
Frequently Asked Questions
How often is interest charged?
Credit card interest is usually calculated on your outstanding balance each day. It’s then charged to your account at the end of your statement period each month.
If you clear your statement balance in full each month, you’ll avoid being charged interest.
What’s the difference between interest rate and APR?
The interest rate is the basic cost of borrowing using that card. It shows how much you’d be charged on your balance based on the rate alone and not including any fees. It’s only part of the cost.
The APR gives you an estimate of the cost of borrowing over a year and includes the interest rate and any standard fees, like monthly or annual fees. So it’s a more realistic view of what you’d pay.
If you’re looking to see what a good interest rate on a credit card is, APRs are a useful way of comparing.
What is my credit card interest rate?
You’ll usually find a breakdown of your credit card interest rate and fees on your statement.
This may be in your ‘summary box’ or a dedicated section with a name like ‘interest rates explained’, ‘interest summary’ or ‘breakdown of balances’.
How can I pay off high interest credit card debt?
If you’re paying a high interest rate on your credit card, you could look into transferring your outstanding balance to another credit card that charges a lower interest rate. You’ll still need to pay off what you owe but you won’t be being charged a high rate while you do.
You can sometimes get credit cards that will offer an introductory 0% period on balance transfers for a set number of months.
If you can’t move your balance to a lower rate, another option would be to pay what you can afford to clear your balance as quickly as you can. That way you can minimise the amount of interest you’ll pay at the higher rate.
What are interest charges on cash withdrawals from credit cards?
This varies by card provider but usually you’ll be charged your cash transaction rate for withdrawals. Importantly, this is charged from the withdrawal date – there’s no interest-free period.
You may also pay a cash advance (or cash handling) fee each time you withdraw cash. At Vanquis, we charge £3 or 3% of the amount withdrawn, whichever is higher.
Is there an interest charge for withdrawing cash in a foreign currency?
When you withdraw cash abroad, you’ll be charged your cash transaction interest rate from the withdrawal date – there’s no interest-free period.
You’ll usually be charged fees too. This may include a foreign transaction fee – also known as a non-sterling transaction fee. And this will be on top of the usual cash advance fee for cash transactions (as mentioned above).
At Vanquis we charge a 2.99% non-sterling transaction fee for using your card abroad and a cash advance fee of £3 or 3% of the transaction amount, whichever is higher.
Over 5 million customers have already been accepted for a Vanquis Card
Want to know more? Check out our page on using your Vanquis Credit Card abroad.