How does residual interest work?
Let's say you owe £1,000 on your credit card, and you pay £500 towards that balance. Even though you've made a payment, interest continues to accrue on the remaining £500 until the end of the billing period. This accumulated interest is called residual interest.
When you receive your next bill, you might see a small interest charge, despite having made a payment last month. This occurs because interest continues to accumulate daily until the credit card company processes your payment and the billing period ends.
How does residual interest differ from regular interest?
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Residual Interest |
Regular Interest |
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Accumulates on your remaining balance after you've made a payment but before the next billing cycle starts. |
Charged on the outstanding balance during the billing cycle. |
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Applies to the leftover balance that continues to accrue interest daily until the end of the current billing cycle. |
Calculated based on your average daily balance or other methods outlined in your credit card agreement. |
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Shows up on your next bill. It's the interest that adds up on your remaining balance after you've made a payment but before the billing period ends. |
Shows up on your current bill. It's the interest that builds up on the amount you owe throughout the entire billing period. |
When residual interest won’t apply
Residual interest won't apply in the following situations:
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If you paid your balance in full by the due date in the previous billing cycle. No interest will accrue, and there won't be any residual interest.
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You used your card during a 0% interest promotional period. During a 0% interest promotional period on purchases or balance transfers, no interest accrues, so residual interest won't apply.
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If your credit card has a grace period and you pay your balance in full every month by the due date. No interest will accrue on new purchases, so residual interest won’t apply.
How long does residual interest last?
Residual interest lasts until you pay off the entire balance. Once your balance is paid in full, no further residual interest will accumulate.
Here are a few key points:
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Residual interest continues to accumulate daily until the full outstanding balance, including any residual interest, is paid off.
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You may see residual interest on your next billing statement if you do not pay off the entire balance by the previous statement's due date.
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Ensure your final payment covers any remaining balance and any interest that may have accrued since your last payment. This will completely eliminate residual interest.
How to avoid residual interest
To avoid residual interest on your credit card, follow these steps:
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Pay your entire balance in full by the due date each month to prevent interest from accruing.
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Be aware of your billing cycle dates. Make your payment well before the due date to ensure it's processed in time.
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Make multiple payments throughout the month to keep your balance low and reduce daily interest accruals. Multiple payments would need to equate to the overall outstanding balance. For example, multiple payments of £1 each day would not prevent residual interest if the outstanding balance was £100.
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Confirm that your payment has been received by your credit card company before the billing cycle ends. This can be checked online.
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Contact your credit card provider if you're unsure about your interest calculations. They can clarify and advise on how to avoid residual interest.
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Fiona Peake
Personal Finance Writer
Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.
