How credit card interest is charged in Australia

The rate looks annual. The charge is daily.

Australian credit cards publish an annual percentage rate. The interest your statement actually adds is that rate divided by 365, applied to the balance each day. Moneysmart’s credit card calculator uses the same idea, because a monthly “20% ÷ 12” shortcut misses the compounding and the days in the cycle.

Daily rate     = annual rate ÷ 365
Interest today = yesterday’s balance × daily rate
New balance    = yesterday’s balance + purchases + interest − payments

On a $4,000 balance at 20% the daily rate is 0.20 ÷ 365 ≈ 0.0005479, and the first day’s interest is about $2.19. Tomorrow the same rate is applied to $4,002.19 if nothing else happened. The extra two dollars are tiny. Left alone for a year they are not.

The interest-free period is conditional

Cards advertise up to 55 days interest-free on purchases. That window is real only when you pay the closing balance of the previous statement in full by the due date. Miss that — even by a few dollars — and new purchases often accrue from the posting date, not from the next statement.

Cash advances and many balance-transfer revert amounts never get the window at all. Interest starts immediately, usually at a higher rate, and a fee is added on top. Mixing a cash advance with ordinary spending on the same card is how a statement becomes impossible to read: different rates, different start dates, one minimum payment.

A $4,000 balance, paid three ways

Cards, personal loans and the rest of the debt

A card is revolving credit: the limit stays, the balance moves, and the rate is high because the lender can take the money back only if you default. A personal loan is amortising: a fixed term, a fixed repayment, a lower rate, and you cannot redraw what you have paid. Moving a stubborn card balance onto a cheaper loan can be the right arithmetic — and a disaster if the emptied card is then spent again.

Use the tools in this order

• Price the current habit with the credit card calculator.
• Compare a fixed repayment against a personal loan repayment of the same size.
• If you are instead saving the same money, the compound interest guide shows why the card rate almost always wins the comparison — 20% going out compounds faster than 5% coming in.

Common questions