How and why to use your credit card’s interest-free period

| 19.02.2018

People in Slovakia still do not use credit cards, because they fear that doing so would cost them too much. However, proper use of a credit card may result in some unexpected benefits. First, we need to explain the term interest-free period and how it will help you.

In principle, the interest-free period is the time provided to you by the bank to settle the credit card amount you owe to the bank without the need to pay any interest on what you borrowed. If you repay your credit card loan within this time frame you do not pay any interest. The interest-free period usually starts at the beginning of each month and ends on a fixed maturity date. The interest-free period depends on the number of days in each particular month. Usually, the interest-free period is about 45-50 days.

Let us illustrate this for you:

You started using the card on 1 April. The interest free period set for your credit card ends on the 15th day of the next month. To settle the total amount for your purchases made with the credit card within the interest-free period, you need to repay what you owe no later than on the 15th day of May. In this case, the interest free period has 46 days (31 days in April + 15 days in May). The amount of what you owe will be indicated on the monthly statement; you will receive the April statement early in May. Afterwards, the same will apply each month – the credit in May will be free of interest if paid not later than June 15. Nevertheless, please check your monthly statement for the precise maturity date because the 15th day of a month may be on Sunday or a public holiday.

However, interest is not the only amount you can save. Banks often charge a monthly fee for a credit card. But for your account you can reduce this fee to nothing by various reward programs. For instance, you use your credit card, de facto for free, if your monthly purchases paid by the credit card reach a certain level and you settle the amount due to the bank within the interest-free period.

The difference between a credit card and a debit card

People usually do not distinguish between credit and debit cards. Each card has its own specific function. The debit card is usually the card that is normally issued with your bank account. It allows you to draw money that you have on deposit in your account. This means that when you pay with your debit card you are using your own funds.

On the other hand, a credit card can be issued to you even if you do not have a current account with Tatra banka. Thus, you don’t use the funds deposited in your bank account but you borrow money from the bank when you use your credit card. If you repay such “borrowing” to the bank within the interest-free period, the bank won’t charge any interest on such a loan. Typically, the interest free period is about 45-50 days; this is the period in which you are not charged anything if you pay the owed amount back to the bank. This is the main benefit of a credit card – you can borrow money quickly and if you pay it back within the fixed period, you do not even pay any interest.