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Credit Card 101

How Credit Card Interest Works

The credit card issuer gives you a certain amount of time to pay back the entire amount that you’ve borrowed before you’re charged interest. The period of time before the interest is charged is called the grace period, which is typically between 21 and 25 days.

If you don’t pay off your full balance before the end of the grace period, a fee or finance charge is added to your balance. The finance charge is based on your interest rate and outstanding balance.

The interest rate is the annual rate you pay for borrowing money on your credit card. Interest rates are generally based on market interest rates, your credit history, and the type of credit card you own.

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