Credit card interest is charged only when a balance isn’t paid in full by the due date, but once it applies it runs daily and can reach back to the purchase date. This page explains when interest is charged, how the grace period works, how the amount is calculated and the ways to avoid it. More on the basics of cards is in our credit card basics guides.
When interest is charged
The Financial Consumer Agency of Canada (FCAC) puts the rule simply: “You’ll pay interest if you don’t pay your credit card balance in full by the due date. You’ll continue to pay interest until you pay your balance back in full.” When the statement balance isn’t paid by the due date, FCAC adds, “you’ll pay interest from the date you made the purchase,” not just on the part left over.
| What you do | Interest |
|---|---|
| Pay the full statement balance by the due date | None on those purchases |
| Pay part of the balance | Interest on purchases from their purchase date until paid |
| Pay only the minimum | The same, on a balance that takes far longer to clear |
| Take a cash advance | Interest from the day you take it, with no grace period |
The grace period
Card issuers give an interest-free grace period to pay for the previous month's purchases, beginning on the last day of the billing period, and federally regulated financial institutions must provide at least 21 days. It doesn't apply to cash advances, cash-like transactions and balance transfers, and interest applies if the balance isn't paid in full by the due date.FCAC’s example: you buy a smartphone on January 15, and “On February 1, you get your January credit card statement which includes the smartphone purchase.” With the minimum grace period applied, “You have until February 21 to pay off the smartphone and your other purchases to avoid interest charges.”
The grace period depends on paying the balance in full. On many cards, once a balance is carried past the due date, new purchases start collecting interest right away until the card is paid in full again; the cardholder agreement says how yours works.
The rates on one card
A card can charge different rates for different transactions. FCAC: “you may pay 19% interest on regular purchases and 22% on cash advances or cash-like transactions. Rates for specialized and retail credit cards may be higher.” Balance transfers and promotional offers have their own rates; FCAC notes an introductory rate usually lasts “6 to 12 months,” and “In some cases, the introductory rate ends as soon as you go over your credit limit or make a late payment.” Your statement and agreement “must clearly indicate the interest rates you must pay.”
Rates can also go up. “If you don’t make your required minimum monthly payments by the due date, your interest rate may increase,” FCAC says, and a federally regulated issuer must notify you before an increase takes effect; what happens if you miss a credit card payment covers the rest. How rates compare by card type is in what counts as a good credit card interest rate.
How the amount is calculated
Issuers work out interest daily: the annual rate divided by 365, applied to each day’s balance, then added up for the statement period. The exact method, including how daily balances are averaged, is in the cardholder agreement.
A $3,000 balance carried at 19.99% for 30 days:
| Step | Amount |
|---|---|
| Daily rate: 19.99% ÷ 365 | 0.05477% |
| Daily interest: $3,000 × 0.05477% | $1.64 |
| Interest for 30 days | $49.29 |
The same $3,000 paid in full by the due date costs nothing.
How long a carried balance takes to clear at the minimum, and what it costs, is worked through in credit card minimum payments. While the balance is high, a large share of each minimum payment goes to interest.
How to avoid paying interest
- Pay the statement balance in full by the due date every month. Purchases then cost nothing beyond their price, and the grace period stays in place.
- Keep cash advances and cash-like transactions off the card, since they collect interest from day one.
- If a balance has to be carried, a lower rate cuts the cost. A low-interest card charges less on a carried balance, and moving a balance is weighed in the balance transfer calculator, after the transfer fee.
- Paying before the statement date lowers the balance that’s reported to the credit bureaus as well, which helps your credit utilization.
Interest is the main cost of carrying a balance, but not the only one: annual, foreign currency and other charges are covered in credit card fees. For a plan to clear an existing balance, see how to get out of credit card debt.
Sources
The figures and rules on this page come from these sources, last checked against them on October 4, 2026. How we check facts.
- Financial Consumer Agency of Canada: How credit cards work