All You Need To Know About Credit Cards

"All You Need To Know About Credit Cards"

What is a credit card?

A credit card is yet another form of payment that allows you to access a loan to make a payment. You can then repay the loan in a more flexible time frame that can suit your budget better. For example, if you don’t repay what was spent in one payment period, the remaining balance will be passed to the next payment period. 

The credit card offers you a specific amount of loan credit that you can use as you see fit. You will be expected to pay a minimum amount, part of the loan or even the full loan within the next month. If you do not repay the amount entirely within a payment period, the remaining balance will be passed over to the next month and you may incur an interest charge. Confused? Don’t worry, we’ll break down the in’s and out’s of using a credit card down below! 

What is a charge card?

A charge card works very much the same as a credit card except that the entire closing balance must be paid off at the end of each month. Therefore, you will not incur interest charges for balances left over. But, there is also a chance that the balance transfers or cash advances can be withdrawn from your card. 

Some of these charge cards do not have a preset limit that can be spent. This means it will be very important for the user to keep track of what they use. This way they will know exactly what they are required to pay at the end of the month. Failure to repay the closing balance in full can result in penalty charges being placed on your card. 

What is a credit limit? 

The credit limit is the maximum amount of cash that can be loaned to a card. This limit will be decided by the credit card provider after they have carefully analyzed your account details and the information on your credit card application.

As you use the credit card, the credit limit you have left will diminish by the amount you have charged to your account. The reverse is true as you make payments to return cash to your credit card. So if your credit limit is $2000 and you buy an $800 sofa for your living room, you will then be left with a credit limit of only $1200. If you then make a repayment of $300, your credit limit will rise to $1500. 


A closing balance is a term used if you still have unpaid credit on your card. You will be required to repay a minimum amount to your credit card provider. This amount can be a percentage of the closing balance or a set amount of cash. It will depend on the original arrangement you made with your card provider. 

While you can pay the minimum without any issues, there are some advantages to paying your balance off earlier. Most importantly, you will not be incurring interest rates.

In your credit card statement, you will find a list of required payments as well as the time frames, interest rates and total costs of paying the balance off in minimum payments alone. Depending on the size of the balance, the time to repay the debt could be years away and the interest rates are exceptionally high. A great deal of cash can be saved by making timely or even early repayments. 

What are interest-free days?

There are credit card providers that will offer interest-free days. This is the time period from the date of purchase in which you will not be charged interest on the payments made. 

With some credit card companies, this will be around 40 to 55 days from the date you made the purchase. Other credit card providers will not offer interest-free days. 

The amount of interest-free days you can expect is an important thing to consider when choosing the right credit card company for you. If you already have a credit card but are not sure what the interest-free days are, you can call your provider to find out. 

The interest-free days will only apply if you can pay off the entire amount of the balance within the time frame given. If you carry the balance over to another payment period, you will have to make all the payments that accumulated from the date of the purchase. 

Here is how this works. You have a credit card and the providers offer you 55 days interest-free and the statement period is 30 days. If you make a payment with your credit card on the first day of your statement period, you will have 30 days until the end of the period, plus an additional 25 days in the next period to pay off the balance and avoid interests. But, if you make the payment on the 14th day of the statement period, you will have only 16 days to the end of the statement period, and the additional 25 from the next period or a total of 41 days to pay off the balance and avoid interest fees. 

Your credit limit will rise and fall with the payments you charge and the repayments you make to your credit limit.

What is the purchase rate?

The purchase rate refers to the interest rate charged on purchases made with the credit card. This rate is variable and can be affected by a variety of factors. 

Introductory purchase rate

Initially, you will work with an introductory purchase rate that is typically lower than the standard rate and is only valid for a specific time period. Once the time period for the introductory rate has passed, the standard rates will go into effect. The advantage of the introductory rate is that it reduces the costs of using the card and makes it considerably easier to repay a closing balance. 

What is a cash advance?

You can also withdraw cash from your available credit balance in a cash advance. 

There will be no interest-free days on this service, however. Interest will begin accumulating from the day you make the withdrawal and this interest is typically higher than what is seen on the purchase of a regular product. 

Additionally, many credit card providers will charge a withdrawal fee for making these cash advances.

What is a balance transfer?

A balance transfer is when you take the balance from one card and add it to a different card. This will often be a card from a different provider. Many credit card providers will attract these transfers by offering considerably low interest rates on balance transfers. 

The special interest rates offered for the balance transfers will only be in effect for a certain amount of time. After this, the interest rates will revert to the regular standard rates or the cash advance rate. Either way, these rates are typically much higher than the cash advance rates. Be sure to check the time periods and the revert rates you will face before making such a balance transfer.

Furthermore, you must be aware of other details. For example, you will not be able to use interest-free days on the card you transfer the balance to because there will already be a balance on the card. Any purchases that you make after the balance transfer will begin to collect an interest rate from the date of purchase. 

Annual fee

Some credit cards will also charge an annual fee for managing your account and providing you with the financial service. This fee will be paid on the anniversary of your account activation. 

Late payment fee

If you do not make a minimum payment by the date specified on your credit card statement, you will be penalized with a late payment fee. 

Foreign currency transaction fee

If you will be using your credit card in a foreign country, most providers will charge a fee for the currency exchange. This includes those purchases you will make from foreign stores online with your credit card. This fee is usually around 3%, but different providers will charge different amounts. 

Credit card key facts sheet

As of July 2012, credit card providers will be required to issue their clients a credit card fact sheet that contains very important information about your credit card. This will make it easier for you to see what you can expect and how this lines up to the options from other companies. Transparency is key when signing up for a credit card.  

Some of the information you will find here includes: 

  • The product name
  • The annual fee
  • The interest rate payable on purchases
  • The minimum credit limit
  • The interest rate for cash advances
  • The late payment fee
  • The minimum repayments
  • Any other promotional interest rates
  • The interest-free period

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Learn how to choose the best credit card for you and tips for paying it off faster.

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