How Credit Card Interest Works in Canada

APR stands for Annual Percentage Rate. It's the yearly interest rate charged on your outstanding balance. Most Canadian credit cards charge 19.99% to 22.99% APR on purchases, and 22.99% or higher on cash advances.

Despite the name, interest is calculated daily. Your daily rate is your APR divided by 365. So a 19.99% APR means roughly 0.0548% per day on your outstanding balance.

The grace period is the time between the end of your billing cycle and your payment due date, typically 21 days in Canada. If you pay your full statement balance by the due date, you pay zero interest on purchases.

This is the key to using credit cards for free: pay in full each month and you'll never pay a cent in interest. The grace period only applies to purchases, not cash advances, which start accruing interest immediately.

The minimum payment is the smallest amount you must pay to keep your account in good standing. In Canada, it's typically the greater of $10 or 1-3% of your balance.

Paying only the minimum is expensive. On a $5,000 balance at 19.99% APR, paying only the minimum would take over 30 years to pay off and cost over $8,000 in interest. Always pay more than the minimum, and ideally the full balance.

If you carry a balance, consider a low-interest card with rates as low as 8.99-12.99% APR. Balance transfer cards offer promotional rates (often 0%) for a set period, giving you time to pay down debt without accruing interest.

Watch for balance transfer fees (typically 1-3% of the transferred amount) and make sure you have a plan to pay off the balance before the promotional period ends.