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Average Credit Card Interest Rate In Canada - What To Do?

4 min read

average credit card interest rates

Written By

Brandi Marcene

According to a statistics report, around 90% of Canadians have used credit cards to make payments in 2022, and it is said that, on average, a Canadian has two credit cards. These people have chosen credit cards to meet the gap between their daily finances. The data emphasizes the fact that credit cards have become a norm in the past few years, and almost every other person uses one to make transactions.

You might have a credit card in your wallet right now, but do you know why banks offer credit cards to their customers? Banks or companies offer credit cards to make money from people's credit card debts.

Have you noticed the credit card bill at the end of the month? There is an amount that is added to your overall bill if there is a balance from the previous month, and it has nothing to do with your spending. This amount is called Credit Card Interest, which banks keep in their pockets to earn from your debts.

Canada has some strict rules when it comes to credit card debts. For example, the collector might even file a collections lawsuit in court against you if you refuse to pay your debts. To avoid such situations, you should have a solid understanding of credit card interest rates in Canada.

How do they calculate credit card interest calculated in Canada, and how does it affect your balance? Keep reading. We will grasp the concept of credit card interests and see what the average interest rate is in Canada and what it means for you.

Credit Card Interest Key Points

● The credit card interest rates are in percentage and show how much you will pay on the outstanding balance you carry on your credit card.

● For your info, if you carry forward a credit card balance from this month to next month, there are accruing interest charges that can change the dimensions of your finances and might even shake your budget.

● It can be as bad as swiping your card for a small purchase but then ending up paying 2x more than the original price due to accumulated interest over time.

● The average credit card interest stands from a steep 19.99% to a staggering 25.99% in Canada, as per Forbes.

● This means that for every $1,000 you carry forward on your balance, you could be charged an additional $199.90 to $259.90 in interest annually.

● But, there are low-interest credit cards that are more manageable because they have a lower interest rate to help you save money and avoid falling into a cycle of debt.

What Is A Credit Card Interest? An Overview

The most common question that people ask when they first consider getting a credit card is, “What will happen if I don’t pay the existing credit card debt? Would they put me in jail for it?”

The answer is: to keep the debtor at ease, companies have created the idea of credit card interest, which is only applied when you carry forward a balance from the previous month to the upcoming month. And, no, they don’t put you in jail unless you break the rules. This is like a relatively small penalty you pay, as compared to jail, for not paying off the debt.

Since this fee is expressed in a percentage, it is important for you to understand the calculation so that the next time you see it on your credit card bill, you can cross-check the numbers. Thankfully, there are various resources to address your concerns about paying credit card debt and provide more than enough information for beginners to understand its calculations. Here are some key terms you should know:

1. Monthly And Yearly Credit Card Interest

When you first jump into the credit card domain, you come across two terms a lot- monthly and yearly interest rates. The monthly or yearly credit card interest represents the cost of borrowing a person will pay either monthly or annually.

The yearly interest rate is usually known as the Annual Percentage Rate (APR) and provides a better understanding of your credit standing. However, the real deal is the monthly interest rate, where you track your monthly spending. This is obtained by dividing the APR by the number of days in a year, which is usually 365. This rate obtained is actually applied to your daily balance.

2. Billing Period

Things get interesting when you get your credit card bill because you have to make sure you know every section of it. Besides other sections, your credit card bill has a section where you find the billing period. This period is the timeframe during which your transactions are recorded.

Usually, after your billing cycle is complete, you will receive a credit card statement. This statement will have the details of your purchases, payments, and, most importantly, the statement balance. This statement balance represents the total amount you owe to the bank or financial institution, and if you don’t, you will have to bear teh curse of interest.

But here's the golden rule: pay your statement balance in one go before the due date arrives to avoid interest charges altogether.

3. The Grace Period

What is the grace period? A credit card often comes with a grace period, which is a window of time (usually 21 days) following the end of your billing cycle. This is the time during which you can get rid of your balance without having any interest charges.

However, if you fail to pay the full amount by the due date, interest will start accruing on your remaining balance from the very first day of your billing cycle, thanks to the daily compounding nature of credit card interest. This means even a small remaining balance can add up to become a full-blown debt over time.

For Beginners

It is very important for beginners to understand the concepts associated with credit card interests. Because these factors come into play when it comes to calculating your credit interest, they keep you from falling prey to huge interest charges and managing your finances.

Speaking of beginners, there are relatively fewer purchases recorded on the credit cards of newcomers in Canada. However, it is important that newcomers get a credit card when they come to the time when they can pay their credit card bills. This helps them to maintain their credit history. By any chance, if you need help with tracking your credit score, then try to build your credit with KOHO.

The 4 Factors Affecting The Credit Card Interest Rates

As we have already mentioned, there are various factors that play their part in the accumulation of your credit card interest. Credit card interests don’t work like fixed fines or penalties, as they are dependent on accumulation and compounding.

You can not pinpoint the exact interest fee on your own unless you have the required details from the financial institution. But here, we pinpoint some factors that influence the rate of credit card interest.

1. The Credit Score

What is the credit score, and why is it so important that everything related to credit involves it? A credit score is one of the most influential factors involved in determining your interest rate. It is the number that you gain when you pay your debts on time. The higher the credit score goes, the better it is for your credit history.

In other words, a higher credit score shows that you have a history of responsible borrowing and timely payments, making them less risky for lenders. If you want to keep track of your credit standing, get a free credit score report because keeping track of your score will help you maintain positive habits.

How having a high credit score helps? People with a high credit score are rewarded with lower interest rates on their overall credit purchases. Not that people with a lower credit score are known to impose a higher risk on lenders, so they have to bear the burden of higher interest rates.

2. Credit Card Type

Among the other factors affecting the interest rate, credit card type holds great importance. Recalling the fact that average Canadians have two credit cards with them. Why do you think people keep more than one credit card? Is a single credit card not enough? Well, people keep more than one credit card because each type of credit card comes with its own pros and cons.

These cards have certain terms and policies that add to their functionality. Based on this functionality or use case, people get to choose from a bunch of options.

For example, stores or gas stations offer retail credit cards that tend to carry higher interest rates than reward cards that offer benefits like cashback or travel points. Reward cards often come with annual fees, and people have a misconception that these cards' annual fees will engulf their savings.

Then, there is this virtual credit card that comes with the perk of instant approval and spending. You don’t have to wait for days to make a purchase with this card because it does not require credit checks.

However, it is important to understand that the potential savings on purchases may outweigh the fee, depending on your spending habits.

3. Introductory Offers

Speaking of the cards, like reward cards, there are certain credit cards that come with introductory offers. If you are looking for temporary peace from the interest charges, go for such cards. Some credit card companies entice new customers by offering 0% interest introductory offers, typically lasting for a limited period (often 6-18 months).

This is the best way to attract new customers for future credit interest potential. At the same time, these offers are beneficial for the customers in every way as they can use them to finance a large purchase, enjoying 0% interest. The drawback kicks in when you have to go through the higher interest rate once the introductory period is over.

4. Very Low-Interest Rate Cards

There are cards that often pique the attention of customers with their relatively low interest rates. While cards with exceptionally low-interest rates do exist, they often come with a catch, like annual fees or restrictions on spending categories. Therefore, it is on you to carefully weigh the benefits and drawbacks before opting for such cards is helpful to align with your financial goals.

When you keep these factors in mind, you make informed decisions that you won't regret later and avoid getting caught in the trap of high-interest rates. Just know that the lower the interest rate, the less you'll pay in the long run. A very low-interest rate will allow you to manage your credit more properly and build a stronger financial future.

The Alternatives to High-Interest Debt

If you have a high-interest credit card, your small debts will feel like a mountain. No matter what you do, it will keep on accruing, making it unbearable for you to pay off this debt. It's not that you can't break free from this burden, as there are various ways people can move towards a better alternative.

A low-interest credit card is the best alternative to that, and it offers a valuable alternative to managing existing debt at a lower cost. These cards come with reduced interest rates, allowing you to make larger payments toward your principal balance and pay your debt faster. Here are some alternatives to a high-interest debt:


Most people don’t know that they have the chance to negotiate credit card interest with their financial institution. We are not saying that every issuer you come across will be open for negotiation. But, the majority of banks or financial institutions provide this offer to their customers in Canada.

For most of us, it is a surprise to know that our credit card issuer is open to negotiating a lower interest rate, but it all depends on how you claim it. That's why it is said that building a strong case demonstrates your commitment to paying off the debt. Being prepared to walk away if necessary might increase your chances of securing a more favorable rate.

Budgeting and Prioritization

Here, we emphasize you upon creating a budget. Your budgeting is important for gaining control of your finances. Therefore, for budgeting and prioritization, keep track of your income and expenses, identify unnecessary spending areas, and then set a substantial portion of your income toward debt repayment.

On the other hand, you must prioritize paying your high-interest debts first, as it will save you the most money in the long run.

Balance Transfers

This is one of the ninja techniques you can use to save yourself from high interest rates. In this alternative, you consider a balance transfer to a card with a 0% introductory interest rate. For eliminating credit card debt, easy balance transfers are very beneficial with a single card with a lower interest rate, often for a limited period.

However, you have to be very careful about the balance transfer fees associated with this option and be sure that you can pay off the transferred balance even before the introductory period ends to avoid accruing high interest charges again.

Stop Missing Payments

This is the worst you can do to your credit history. Remember that when you start missing credit card payments, you have severe consequences. For example, you have to pay late fees and additional interest charges. The charges can quickly escalate your debt and further complicate your financial situation.

What to do? Always prioritize making your minimum payments on time to avoid these detrimental impacts. This is not much of an alternative but a warning that if you miss your credit card payment, you will be judged as a potential risk to the lender.

Credit Habits for a Brighter Financial Future

These valuable tools must be used with caution. This caution comes when you practice healthy credit habits and avoid debt accumulation that hinders your financial well-being.

The first thing you have to do is avoid relying solely on your credit cards. You can manage your everyday purchases with your debit cards or cash advances, so keep it that way. However, when you use your credit, make sure that you only purchase those items for which you can pay in full before the due date.

Besides credit, you can consider other financial solutions for your bright future. A high-interest savings account comes in handy at the time of retirement. It provides a safe and secure way to save money and earn interest, potentially reducing your reliance on credit altogether.

A better alternative to a credit card for everyday expenses is overdraft protection coverage. This gives you peace of mind while you manage your day-to-day finances without owing huge amounts to anyone.

Final Thoughts

If you want to have a financially sound life in Canada, it is important for you to understand the interest rates on your credit card. Having a credit card is important to get things done without waiting for salaries but keep your spending habits under control of your total earnings.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!


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