Credit card interest is the charge for borrowing money when a balance is carried from one statement period to the next. If the full statement balance is paid by the due date, purchases often receive an interest-free period. This does not usually apply to cash withdrawals, which may attract interest from the transaction date.
Credit cards normally quote an annual percentage rate (APR), but interest is commonly calculated using a daily rate. A card with a 24% annual rate has a rough daily rate of 24% divided by 365, before compounding and any applicable fees. A balance of £1,000 would therefore incur approximately 66p of interest per day at that rate, although the actual amount depends on the card’s terms, payment dates and balance changes.
Interest is generally calculated on the balance outstanding during each day or billing period. Payments reduce the balance, while new purchases, fees and cash withdrawals can increase it. Paying only the minimum keeps the account open but usually leaves more of the balance accruing interest and extends the repayment period. The minimum payment formula and the way payments are allocated vary by provider; the card agreement explains the specific rules.
APR is intended to show the overall annual cost of borrowing, including certain mandatory charges, and is useful for comparing credit products. It is not necessarily the amount added to a balance in one year. The total cost also depends on how quickly the balance is repaid. For example, making additional payments above the minimum can reduce both the outstanding balance and the interest charged in later periods.
Tools such as Updraft’s balance and payoff views can help show what is owed, the interest being charged and the estimated repayment timeline across connected accounts. A fixed-rate loan used to clear card balances has a fixed repayment schedule, but its total cost should be compared with the cost of continuing to use the cards, including any arrangement fee and the total amount repayable. Paying off the cards does not remove the need to manage future spending or check the terms of each credit agreement.