Understanding Purchase Interest Charges on Credit Cards

Purchase interest charges are what you pay when you don’t pay your full credit card balance by the due date.

Instead of owing just what you spent, you also owe interest on the carried balance, usually calculated daily until it’s paid off.

KOHO Essential Helps You Avoid Purchase Interest

If you’d rather not worry about purchase interest at all, using a prepaid card instead of a traditional credit card can help.

With KOHO Essential Account, you spend your own money, not borrowed funds:

• It has a low monthly plan fee that can be waived when you set up direct deposit or add +$1,000.

• Use a prepaid Mastercard® for groceries, bills, subscriptions, and travel.

• Grow your savings with a 2% interest savings rate on your entire balance.

• Earn 1% cash back on groceries, eating & drinking, and transportation.

• You can subscribe to Credit Building for $10/month, it's an affordable way to build your credit history.

• Enjoy unlimited transactions and free e-transfers (never worry about fees when sending money to someone again).

How Purchase Interest Works on a Credit Card

Here’s the basic flow on a regular credit card:

1. You make purchases throughout your statement period.

2. At the end of the period, you get a statement with a due date.

3. If you pay the full statement balance by the due date, you keep your grace period and usually pay no purchase interest.

4. If you don’t pay in full, interest is charged on the remaining balance, often calculated daily, at the card’s annual interest rate (e.g., ~19–24%).

In many cases, once you carry a balance, new purchases can start accruing interest immediately too.

Why Minimum Payments Aren’t Enough

The minimum payment on your statement is the smallest amount you must pay to avoid being “late,” but:

• If you only pay the minimum, you’ll still owe interest on the remaining balance.

• Large balances + high rates + minimum payments = very slow progress and a lot of interest over time.

To really cut interest, you need to pay more than the minimum—ideally the full balance whenever possible.

How to Reduce or Avoid Purchase Interest

• Pay your statement balance in full by the due date whenever you can.

• If that’s not possible, pay as much as you can, as early as you can—interest is often calculated daily.

• Avoid using a credit card for spending if you already know you can’t pay off what you’re putting on it.