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A lady is looking at her credit card while she's on the phone; image used for understanding credit card interest page.

How does credit card interest work?

We're here to answer your most frequently asked questions, including how to calculate credit card interest.

A credit card is a great way for you to buy now and pay later. But if you don't pay off the full closing balance on your credit card statement by the due date, you will be charged interest on purchases unless an interest free period on purchases applies. Understanding what that means and when you will be charged could help you better manage your card.

There are a few different types of credit card interest, and a few ways interest is calculated and charged. We'll explain them now, along with a few useful tips on how you can minimise the interest charged to your credit card.

What are the different types of credit card interest?

Interest on your credit card is charged at different rates depending on how you use your card. The different rates are all expressed as the Annual Percentage Rates (APR). You’ll find the current interest rates and charges applicable to you listed in your monthly HSBC credit card statement.

What is purchase APR?

Purchase APR is the main advertised interest rate. It is the rate at which you’ll be charged interest on your purchases if you don’t pay off your closing balance in full by the due date on your statement, provided an interest free period on purchases doesn’t apply.

What is cash advance APR?

If you withdraw cash on your credit card, you may be charged a different interest rate. This rate will start to apply from the day the cash is withdrawn until the amount borrowed has been paid back in full. With HSBC credit cards, cash advances have a higher APR than a purchase APR.

What is a balance transfer APR?

If you have transferred a balance from another bank or a store card, you may receive a promotional APR or interest rate for a set time period. This is typically lower than the purchase APR. Remember that once the promotional period has ended, your balance transfer will start to attract the same interest rate as the cash advance rate current at the time.

When does credit card interest get charged?

Some credit cards offer you an interest free period. All HSBC credit cards offer you up to 55 days interest free on purchases. You will be charged interest if you don’t pay off your full closing balance on time and if an interest-free period on purchases doesn’t apply. If you only make a partial payment or only make the minimum monthly repayment for a given statement period, you'll be charged interest on the unpaid balance from the day after the due date shown on your statement.

An important thing to note is that any new purchases will start to accrue interest from the day of the transaction until your credit card bill is paid off in full. You will no longer have the benefit of an interest-free period on purchases.

How does credit card interest get calculated?

While an APR is the Annual Percentage Rate, interest on your outstanding balance is calculated on a daily basis and charged monthly. To work out your daily rate, divide the Purchase APR, for instance 19.99% p.a., by 365 – this will give you a daily rate of 0.0548%. Each day there is an outstanding balance, a daily interest charge is calculated using your daily rate and added to the amount owed on your next bill.

How do I avoid credit card interest?

Just pay off the closing balance specified in your statement by the payment due date. If you do this for every statement, you will never pay any interest on your purchases, and you'll also be able to enjoy the interest-free period on your purchases. Avoid taking cash out on your credit card, since this will be charged interest from day one.

If you’ve made a promotional purchase using HSBC Interest Free, be aware that any balance outstanding at the end of the promotional period will form part of your normal account balances and will be charged the same interest as the cash advance rate current at the time.

What can I do to reduce any interest I may have to pay?

If you can’t pay off the full balance you owe, aim to pay as much as possible. With interest on any outstanding balance on your card being calculated daily, the more you pay off, the less interest you’ll be charged.

Also make sure you understand how the repayments you make get allocated to your credit card. HSBC will allocate any repayments to that part of the closing balance of your previous statement which attracts the highest interest rate first, before allocating to portions of your balance that attract lower interest rates. Once your closing balance has been paid, repayments are then allocated to any remaining unpaid balances.

If you find yourself with outstanding balances on several credit cards, you might want to consider a balance transfer. This will simplify things by giving you only one repayment to remember each month. Additionally, balance transfers often have an introductory promotional rate that is lower than a standard purchase APR. Please note that a balance transfer request with HSBC can only be accepted from non-HSBC credit cards.

What is the minimum I have to pay each month?

If you owe any money on your card you still have to pay a minimum amount each month. Depending on which HSBC credit card you hold, this repayment is either 2% or 3% of the balance owing or $30, whichever is higher. If you took advantage of HSBC Interest Free with 0% interest, you would still have to pay the minimum amount each month.

If you don’t have an HSBC credit card, check out which one may be best for you. From Qantas Points to Reward Plus Points we have a credit card to suit everyone.