How does credit card interest work?
Every credit card holder should understand how interest is charged – that way, you can make informed decisions about how you use your card.
Types of credit card interest charges.
Purchases vs cash advances
When you use your credit card, interest is charged differently on purchases, cash advances and balance transfers.
Interest on your purchases is not charged immediately. If you pay your closing balance in full by the due date, there is no interest to pay on purchases. Interest accumulates daily and will be charged on your next statement if you haven’t paid your closing balance in full by the due date. The interest will continue to add up until the total balance is paid.
Cash advances including quasi-cash
A cash advance is when you use your credit card to access money rather than making a purchase on your card. It includes withdrawing cash at an ATM in New Zealand and overseas. It also includes transferring money from your credit card account to another account using online banking or phone banking.
A quasi-cash transaction is a cash advance too. It’s when you use your card to purchase goods or services that are similar, or easily convertible, to cash. For example,
- when you use a credit card to purchase foreign currency,
- top up a TAB,
- My Lotto or share account,
- purchase cryptocurrencies,
- or send money overseas.
Interest is charged from the date of the cash advance until the date this is paid off in full. The interest rate on cash advances is usually higher than the rate on purchases. If you withdraw cash overseas, fees may also apply.
The number of interest-free days on purchases and interest rates you pay for reoccurring credit card balances (if you don’t pay your balance in full each month) and cash advances, will vary depending on which credit card you use. You can see all our credit card interest rates here.
Unless part of a promotion, if you transfer a balance from a non-Westpac account to your credit card, interest is normally accumulated every day, including the day you transfer the balance to your credit card. The interest rate on balance transfers is usually lower than purchase rates, and may have a term that the rate applies after the term the rate will be the same as a purchase rate.
How your payments are applied to your credit card
When you make a payment on your credit card, it is applied against the amount you owe, putting higher-interest transactions ahead of lower-interest ones. Unless otherwise advised as part of any promotional offer, your payments are applied in this order:
- All charges, either shown on the current statement or any previous statements, or charged since your current statement.
- All interest, shown on the current statement or any previous statement.
- All cash advances shown on the current statement, or any previous statement.
- All purchases shown on the current statement, or any previous statement.
- Any balances transferred from accounts at other institutions shown on the current statement or any previous statement. Should your account contain multiple balance transfers, the balance transfer with the highest interest rate will be paid off first.
- All cash advances made since the current statement.
- All purchases made since the current statement.
- All balance transfers from accounts at other institutions made since the current statement.
Please see Card Conditions of Use for more information.
How to minimise the amount of interest you pay
When you receive your credit card statement, you’ll see the full balance owing is listed, along with a due date and a minimum repayment amount. If you pay the full balance owing, by the due date, you won’t be charged any interest on your purchases.
If you have a balance transfer, you will not be charged interest on the purchase listed in that statement if you pay the statement closing balance, excluding the balance transfer amount, on or before the pay by date.
If you have a balance transfer (unless part of a promotion) or any cash advances you will be charged interest on the daily balance of these from the day you completed the transaction until it is paid off.
A cash advance on your credit card is a particularly high-interest way to borrow money – if you regularly need to withdraw cash, depending on your circumstances you might like to consider other borrowing options. If you want to repay any cash withdrawals before they appear on a statement you will need to contact us on 0800 888 111 as payments will first be applied to all balances that appeared on your last statement.
Interest free days give you access to interest free credit if you pay off your balance in full by the payment due date. For some cards you can receive up to 44 days interest free credit, others offer up to 55 days – depending on when you make purchases during the month.
If you only pay off part of your outstanding balance by the payment due date, you’ll pay interest on your purchases from the day you made them. To enjoy interest free days on your purchases, you’ll need to pay off the full balance (excluding balance transfers) by the payment due date in a future statement month.
What happens if you only make the minimum repayment?
Making the minimum repayment each month prevents you from being charged late payment fees on top of interest. But paying only the minimum will mean your balance rolls over and continues to be charged interest. If you are also continuing to spend, your credit card balance will increase. If you are having difficulty managing or paying your credit card or other loans, we have tips and help available.
Hardship assistance can help give you some breathing room if you’re struggling to make repayments on your credit card or other loans. In certain circumstances, we may also be able to offer alternative financial help to customers who do not qualify for hardship assistance. Find out more here.
We can help.
Find out how to consolidate outstanding balances from hire purchase, store cards or another bank’s credit card to a Westpac credit card1.
Personal Loan for debt consolidation
Find out how a debt consolidation loan can combine multiple debts into a single loan, with one regular repayment, an end date and no early repayment fees.
Credit card payment options
There are lots of ways to make payments to your credit card.
Managing Your Money webinars
Our Managing Your Money webinars cover a range of topics and allow you to learn about finances from home.
Things you should know.
1 Balance Transfer Terms and Conditions and lending criteria apply. All applications are subject to Westpac approval. You cannot transfer a balance from a Westpac card or loan. Payments made to your Westpac credit card will first be applied to charges and interest accrued, then to cash advances and purchases, followed by balance transfers. All new purchases, cash advances and any unpaid interest or fees will incur interest at the standard interest rate in accordance with the card's Conditions of Use. You can transfer up to 95% of your available credit card limit. Your card must remain within its credit limit after the balance has been transferred. Balances cannot be transferred to a Mastercard® BusinessCard/Purchasing Card. Balance transfers do not earn Airpoints Dollars™ or hotpoints®. You must close any facilities indicated in this application as being repaid by the balance transfer.
Credit Cards: Eligibility criteria, Lending criteria, terms and conditions apply. Conditions of Use for the applicable card apply. Rates, transaction and services fees apply. Overseas cash advances and foreign currency fees may apply.
Personal Loans: Westpac’s eligibility criteria, lending criteria, terms and conditions apply. An establishment fee of $0 may apply. You’ll need to be 18 or older and a New Zealand citizen or permanent resident. If you’re not a New Zealand citizen or permanent resident but you’re working in New Zealand, or you don’t meet the other criteria, we still may be able to help.
This material on this page is provided for information purposes only, without taking your particular financial situation or goals into account.
Mastercard is a registered trade mark and the circles design is a trade mark of Mastercard International Incorporated.
You must be a member of Air New Zealand’s Airpoints™ programme to earn Airpoints. Airpoints terms and conditions apply. For details on Airpoints Dollars Advance and Airpoints Dollars Expiry see airnewzealand.co.nz/airpoints.