How credit card interest works in Australia
Credit card interest is charged on the money you owe, calculated from a daily rate (the annual rate divided by 365) and added to your account once each statement period. You avoid it on purchases only by paying the full closing balance by the due date every month; carry any balance and you usually lose your interest-free days, so new purchases are charged interest from the day you make them.
This guide explains each piece: the rates on a card, how interest-free days really work, what counts as a cash advance, how minimum repayments stretch a debt out, and the rules in the National Consumer Credit Protection Act that decide which part of your balance a payment clears.
By Better Rate Mate Editorial Team · Last reviewed
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
The rates on a credit card
For scale: the RBA's average standard credit card rate was 21.24% a year in September 2026, and its average low rate card rate 13.49%.
| Transaction | Rate that applies | Interest-free days? |
|---|---|---|
| Purchases | Purchase rate | Usually yes, if you paid the last closing balance in full by the due date |
| Cash advances (ATM withdrawals, money transfers, cash-like transactions) | Cash advance rate, often higher, plus a cash advance fee | No: interest from the day of the transaction |
| Balance transfers | Promotional rate for a set period, then the revert rate | No, but a 0% rate means no interest during the offer |
| Introductory (honeymoon) offers | A lower rate for a limited time | Depends on the offer |
How the interest is calculated
Methods vary by issuer, but CommBank's published explanation is typical: it averages the balance you owed each day across the statement period, multiplies by the daily rate (annual rate ÷ 365), then by the number of days in the period, separately for each type of balance. Interest is added to the account on the last day of the statement period.
A hypothetical example: carrying $2,000 for a 30-day statement period at 21.24% costs about $34.92 ($2,000 × 21.24% ÷ 365 × 30).
Interest-free days: how they work and how you lose them
"Up to 55 days interest-free" means a purchase made at the start of a statement period gets the whole period plus the time to the due date; one made the day before the statement closes gets only the time to the due date. Moneysmart's plain rule: interest-free days only apply if you pay the full balance by the due date.
Pay less than the full closing balance, even by a little, and you usually lose the interest-free period. CommBank's explanation, for example, says it then charges interest on the unpaid balance from the day after the due date, and new purchases attract interest from the day you make them. To get interest-free days back, you generally have to clear the balance in full; check your card's conditions for the exact rule.
Which balance does your payment clear first?
The law decides this, not the bank. Section 133BQ of the National Consumer Credit Protection Act requires a card issuer to apply your payment to the closing balance on your last statement, and where different rates apply to parts of that balance, to the highest-rate part first, then the next highest, and so on. Any amount left over is applied under the card's terms (s 133BR). If you've asked for payments to go against a particular amount and the issuer agreed, that comes first (s 133BP).
In practice: pay more than the minimum and the extra clears your most expensive debt first, such as a cash advance. On a card with a 0% balance transfer, it clears the higher-rate purchases before the transfer; see balance transfer credit cards.
Other rules on your side
These come from Part 3-2B of the National Consumer Credit Protection Act and are summarised in ASIC's Report 788.
- No backdated interest. Since 1 January 2019 issuers can't charge interest retrospectively, for example on a balance that had an interest-free period (s 133BS).
- No over-limit fees without consent. An issuer can't charge fees or a higher rate for going over your limit unless you've given express consent, which you can withdraw at any time (s 133BI).
- Limit reductions and cancellation online. For contracts entered into after 1 January 2019, you can reduce your limit or cancel the card, including online.
- No unsolicited limit increase offers, since 1 July 2018.
Minimum repayments stretch a debt out
The minimum repayment keeps the account in good standing; it doesn't clear the debt quickly. A hypothetical example: paying a flat $60 a month on a $3,000 balance at 21.24% takes about 10 years and costs about $4,396 in interest. Paying $300 a month clears the same balance in 12 months. Moneysmart's credit card calculator shows your own figures, and our balance transfer calculator compares staying put with moving the debt.
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
What to watch for
- Paying "most" of the balance: anything less than the full closing balance usually cancels interest-free days.
- Cash advances, which have no interest-free period and usually a fee.
- Transactions your issuer treats as cash, such as some money transfers.
- A long run of minimum-only repayments.
- Opting in to over-limit fees you don't need.
Common questions
How is credit card interest calculated?
From a daily rate (the annual rate divided by 365) applied to the balance you owe each day, and added to your account each statement period. For example, $2,000 at 21.24% for 30 days is about $34.92.
Do I pay interest if I pay the minimum?
Yes. Paying only the minimum means you carry a balance, which is charged interest, and you usually lose interest-free days on new purchases too.
When does interest start on a cash advance?
From the day of the transaction. Cash advances have no interest-free period and usually carry a separate fee.
Which debt does my credit card payment go to first?
By law (s 133BQ of the National Consumer Credit Protection Act), to the closing balance on your last statement, highest interest rate first. Any extra is applied under the card's terms.
Can a bank backdate credit card interest?
No. Since 1 January 2019 credit card providers have been prohibited from charging interest retrospectively, such as on a balance that had an interest-free period.
What is the average credit card interest rate in Australia?
The RBA's average standard credit card rate was 21.24% in September 2026, and the average for low rate cards was 13.49%.
Related guides
Work out what a card would cost you
Card types, fees, interest-free days and credit limits, explained in one place in ourcredit cards guide. Our short quiz turns how you use a card into a checklist of what to look for, emailed to you.
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