Why am I being charged interest on a zero balance?

Maryalene Laponsie
Written by
Maryalene Laponsie
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It can be an unpleasant surprise: You pay off your credit card only to get a bill for interest. It can be both frustrating and bewildering.

Why am I getting charged interest on a zero balance?

There are several reasons and while it may seem unfair, they are all legal. Keep reading to understand why you might be charged interest even though your balance is zero. Plus, we’ll cover some tips to help you avoid this situation in the future.

Can a credit card charge interest on a zero balance?

They can depending on the terms of your card and when your payment was received during the billing cycle. Here are some common scenarios:

Residual interest

Sometimes called trailing interest, residual interest is the culprit of many unexpected bills after a card is paid off. It occurs because credit card companies assess interest every day that a purchase is not covered by a grace period.

Typically, there is a lag between when a statement is issued and when payment is received. During that period, interest may be accruing every day. As a result, even if you pay off your full statement balance, you may later get a bill for interest from the days between the statement date and your payment date.

Late payments

Perhaps you have a 0% APR card and still received a bill for interest after paying off your balance. This scenario can be doubly confusing, but there are several reasons why this might happen.

One is that your previous payment was late. Some cards will discontinue promotional rates, such as zero-interest offers, if a payment is received after the due date. In that case, your card may have been accruing interest before your final payment was received, and you have to pay off the residual interest.

Ineligible purchases

Similarly, your 0% APR offer may not have extended to all activity on your card. For instance, many cards will offer zero-interest offers on balance transfers but not on purchases. If you were paying off a balance transfer and then made some purchases on your card as well, you could be on the hook for interest after paying off the transferred amount.

Expired promo period

If your card has a zero-interest promotion, interest will start being assessed as soon as the promo period is over. If that is before your final payment is received, you could owe some residual interest.

The situation is even worse if your promotional offer calls for deferred interest. In that case, if you haven’t paid back the balance at the end of the promo period, you could get hit with interest charges that go back to the date of your initial purchase.

Tips to avoid interest on zero balance cards

Properly timing your payments and understanding how your card works are keys to avoiding a surprise bill or interest charge on promotional balances. Here’s how to minimize both:

Understand your card’s grace period

A grace period for a credit card refers to the time between when a billing cycle ends and the payment is due. Most cards don’t charge interest on new debt during the grace period, but there is no law requiring this. The grace period may also only apply to purchases and not cash advances.

Take the time to read the fine print of your card’s terms to determine how long its grace period is and whether it applies to all charges on a card or just purchases. While this information won’t necessarily help you avoid all residual interest, it can ensure it won’t be a surprise.

Make payments on your statement date

If you want to ensure you won’t be charged for residual interest, make your payments on the same day your statement is issued. Most card issuers will deliver statements electronically to those who opt-in, and many will post payments the same day they are made, assuming you use your card’s website or app.

By making immediate payments, you eliminate the risk of missing a grace period deadline and accruing interest on your card.

Be wary of deferred interest promotions

There is a difference between a 0% APR promotional offer and deferred interest financing, but marketing for the two can sound similar.

With a zero-interest credit card, once the promotional period ends, you’ll be charged on any balance you carry going forward. If you have a card with a deferred interest offer, you only avoid interest if you pay off your balance by the end of promotional period.

If you don’t, you’ll be assessed interest on the entire amount you borrowed going back to the day of your purchase. For instance, if you have a 12-month promotional period but are a week late with your final payment, you’ll be assessed interest for all 12 months, regardless of how much you still owe.

Deferred interest offers are typically extended by store credit cards. You’ll know an offer has deferred interest if it uses language such as “no interest if paid in full.” Before signing up for special financing from any store, be sure to ask when and how interest will be assessed if you still have a balance at the end of the promotional period.

Rather than risk getting hit with a large interest charge from a deferred interest promotion, check out the best 0% APR cards and use one to finance future large purchases if necessary.

Maryalene Laponsie
Cardratings Contributor

Maryalene is a freelance contributor to CardRatings.com and specializes in personal finance topics such as credit cards, budgeting, saving and investing. She has written professionally for nearly 25 years and is a regular contributor to U.S. News & World Report, Money Talks News,...Read more

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