One of the biggest benefits of having a credit card is – buying now and paying later. And the banks and finance companies let their customers enjoy an interest-free period to repay the amount. However, you need to repay the amount within this period. Interest will be charged if you fail to do so. In this post, we will discuss the interest-free period in credit cards. Read on to know about the same.
What Do You Understand by an Interest-free Period?
Most credit cards offer their customers an interest-free period up to a specific number of days for the purchases made through the card. The interest-free period can be defined as the maximum duration of time between a purchase made and then being charged the interest – as long as the customer doesn’t already owe money on the credit card.
Banks and companies usually provide an interest-free period of 45-55 days to repay the amount. If you fail to make full payment by the end of the interest-free period, you will be charged 2-3% interest per month on the amount due. Many people default on the payments as they don’t have proper knowledge about how banks calculate the interest-free period. Let us discuss the same:
How Do Financial Institutions Calculate Interest-free Period?
The credit card statement contains information about the total outstanding amount you owe (at the end of the interest-free period) and the due date. It also contains information about all the purchases you have made and the date of statement generation.
Here is a thing to consider, however. The 45–55 days interest-free period is the maximum period provided to pay your bill. This interest-free period does not necessarily mean that you have 45-55 days for all the purchases you made through your credit card. The interest-free days vary according to the dates the purchases are made. Let us understand this in detail:
- Suppose your credit card statement is generated on the 25th of every month.
- Then the billing cycle will be from 25 July to 24 August and the due date to pay your bill will be 11 September.
- It means that you need to pay the total outstanding bill by 11 September for all the purchases made between 25 July and 25 August.
- 11 September will be the last day to pay the bill here.
- If you purchased something on 25 July, the interest-free period for that purchase is 47 days.
- But in case you have purchased something on 24 August, the interest-free period for that purchase is 18 days only.
How to Use Credit Card Interest-free Period Smartly?
Here are more details:
1. Plan Your Purchases
Try to make purchases in the early days of your billing cycle so you can get a greater number of interest-free days for your purchases. Let us understand this in detail:
- If you need to purchase something on the latter days of the billing cycle, try to postpone it for a few days to fall into the next billing cycle.
- Take the example of the above-mentioned billing cycle. In case you need to buy something on 21 August, try to delay it and purchase on or after 25 August.
- This way the purchase will fall on the 1st day of the next billing cycle.
- Now you will need to pay the due amount for this purchase on 11 October and not 11 September.
- So, by delaying your purchase for 4 days, you can save yourself from an extra burden for the current month.
- It can greatly affect your budget, especially if you are doing a job and cannot go heavy on bills.
2. Maintain Multiple Credit Cards
If you have more than one card, let us say two cards, and both the cards have different billing cycles. You can use both cards smartly and enjoy a greater number of interest-free days. Whichever card offers you the apt interest-free days, use that for the purchase than the other card. It will save you from paying extra burden or paying interest.
While enjoying the benefits that come with a credit card, always remember to use your card with caution. Always keep in mind your payment capability, your due date, and your billing cycle. Search and know about the hidden charges and interests first and then use your credit card carefully to avoid any problems. Always remember debt is a debt no matter what.