What are credit card interest rates?

An introduction to interest rates and how you’re charged for borrowing.

Credit card interest rate basics

When you borrow money on a credit card, you can be charged interest for the service.

The amount of interest you’ll pay is worked out as a percentage of the money you borrow. This is an interest rate.

  • The higher it is is, the more expensive it'll be for you to borrow.
  • The lower it is, the cheaper it'll be for you to borrow.

Watch our short video for more details.

What are credit card interest rates? Watch our short video to find out more.

  • When you borrow money on a credit card, you’ll be charged interest. The amount of interest you’ll pay is worked out as a percentage of the money you’ve borrowed.

    This percentage is called your interest rate. The higher it is, the more expensive it’ll be for you to borrow. The lower it is, the less expensive it’ll be for you to borrow.

    But it's important to note that this interest doesn’t include any fees and other extra charges.

    For credit cards, interest rates can be broadly presented in a couple of ways…
    Firstly: the simple interest rate.
    This is the actual rate used to calculate how much interest you’ll pay. You’ll see the simple rate shown as either a monthly rate, or an annual rate also known as the Simple Annual Rate (SAR).
    SAR is usually divided by 365 to calculate how much you’ll be charged every day.
    The second type of interest rate is the Annual Equivalent Rate (or AER, also known as ‘Per annum’).

    AER shows the effect of ‘compounding’ the simple rate over one year. Compounding is when we add interest to a balance, increasing the total amount that future interest charges may apply to.

    Depending on how you use your credit card, the amount of interest you’ll pay could vary. For example, there can be different rates for purchases, balance transfers, money transfers or cash transactions.
    You’ll find details of interest rates and how interest is charged on your latest statement, or in the terms and conditions of your account.

    Now, let’s look at an illustrative example to see how card purchase interest rates work in practice.

    Dan has a new credit card with a Simple Annual Rate of 20% on card purchases. Dan spends £1,000 on Day 15 of the first month with his new credit card. On Day 30, his first credit card statement arrives.

    This first statement shows Dan has until the 25th day of the next month – Month 2 – to at least make his minimum payment of £25 or to make sure he doesn’t pay interest on his purchase, to clear his full balance on time.

    On Month 2, Day 25, Dan pays only his £25 minimum payment. This means the interest charged on his Month 2 statement is calculated from Month 1, Day 15, when he made his purchase.
    It is calculated as follows.

    If we use the 20% Simple Annual Rate to calculate the interest… on his £1,000 balance from Month 1, Day 15 until Month 2, Day 25 it will be 54.79p of daily interest. And when Dan made the first minimum payment, the daily interest on his balance of £975 was reduced to 53.42p from Month 2, Day 25 until Month 2, Day 30.

    So, in total, the daily interest charged so far on his Month 2 statement is £25.12. And he’ll continue accruing daily interest on his monthly balance until he clears it.

    But if Dan regularly pays more than his minimum payment he’ll clear his balance faster and pay less interest on the money he borrowed. That’s why we recommend paying as much as you can every month.

    Please note that not all credit cards have the same number of days to pay or statement on the same day as in this example. This can vary, so be sure to check your card’s terms and conditions.

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    Visit lloydsbank.com/creditcards for more information.

     

Are there credit card charges other than interest?

Yes. Aside from interest, you can also be charged various credit card fees – read more about credit card fees . 

Banks often use Annual Percentage Rate (APR), which takes into account both standard fees and interest, to approximate the cost of borrowing with a credit card.

What is APR?

There are different rates of interest for different usages

You can use a credit card in a variety of ways, with some cards better suited to certain uses than others. This is why you should always plan how you intend to use the card first and then pick one accordingly. You should also think about how much you can pay back, and when, so you know how much interest you will be charged.

Purchase rate

The rate of interest you’ll pay when you buy goods or services with your credit card. This is the rate most commonly seen in advertising and APR calculations, for example.

Balance transfer rate

When you move your borrowing from one card to another, this is a balance transfer. You might also be charged a fee to transfer your balance, on top of your balance transfer interest rate.

Money transfer rate

If you move money directly from your credit card’s available credit limit into a UK current account, this is a money transfer. You might also be charged a fee for this on top of your money transfer interest rate.

Cash transaction rate

When it comes to cash, your credit card interest rate works differently – as you’ll pay interest from the date of the transaction. There will probably also be fees, such as cash transaction and ATM fees.

Frequently Asked Questions

Key points on credit card interest rates

  • Interest rates help tell you the cost of borrowing money.
  •  This cost is shown as a percentage of the money you’ve borrowed.
  • There can be different interest rates for card purchases, balance transfers, money transfers and cash transactions.
  • Interest doesn’t include any application fees, yearly fees, cash withdrawal fees and other extra charges.
  • You should still read the terms and conditions and summary box to see if a card is right for you.

How do I find out my credit card interest rate?

To see what your interest rate is, just log on to Internet Banking or register for Internet Banking if you’ve not already done so. Click the ‘View statement’ button next to your credit card, then select ‘PDF statements’. On your PDF statement you will find your credit card interest rates.

Where next?

Credit card basics

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