How Credit Card Interest Works in Australia

By the Aussie Credit Guide editorial team · Reviewed 5 October 2026

Credit card interest is worked out every day on what you owe and added to your account once a month. Whether you pay any at all depends on one thing: clearing the full statement balance by the due date.

The daily calculation

Card rates are quoted per year, but interest is calculated daily. The provider divides the annual rate by 365 and applies it to the balance owing at the end of each day. The daily amounts are added up and charged to the account once per statement period.

As an illustration, $2,000 owing for 30 days at 19.99% p.a. costs about $32.86 in interest. Moneysmart puts the average credit card rate at over 18%, and purchase rates on the cards we list range from about 11% to 24%.

Different rates for different transactions

• Purchase rate. Applies to things you buy. This is the rate usually advertised.
• Cash advance rate. Applies to cash withdrawals and similar transactions. It is usually higher, and interest starts on the day of the transaction. See cash advances.
• Balance transfer rate. A promotional rate, often 0%, on debt moved from another card for a set period. See how balance transfers work.

When you pay no interest on purchases

Most cards offer a number of interest-free days on purchases. Moneysmart’s summary is that these only apply if you pay the full balance by the due date. Pay the closing balance in full every month and purchase interest is never charged.

What changes when you carry a balance

If you pay less than the full closing balance, two things usually happen:

• Interest is charged on the unpaid amount, typically backdated to the date of each purchase.
• New purchases stop getting interest-free days, so they attract interest from the day you make them. This continues until you have paid a statement in full.

This is why a card can feel far more expensive than its rate suggests once a balance is being carried. The details differ between providers and are set out in each card’s terms and conditions.

How repayments are applied

Under Australian credit law, repayments on a personal credit card opened since July 2012 must generally be applied first to the part of the balance attracting the highest interest rate. That means a repayment reduces cash advance debt before purchase debt when the cash advance rate is higher.

Ways people reduce the interest they pay

• Paying the full closing balance by the due date each month.
• Paying more than the minimum when the full balance isn’t possible. See minimum repayments.
• Paying earlier in the cycle, since interest is calculated on each day’s balance.
• Choosing a lower-rate card if a balance is often carried.

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