How Does Credit Card Interest Work in Canada? (2024)

FAQs

How does credit card interest work in Canada? ›

Credit card interest kicks in if a cardholder doesn't pay off their balance in full. Your credit card's APR is divided by the number of days in the year—365 (leap years don't count)—and applied to whatever is left outstanding on your balance. On an APR of 20%, the daily percentage rate comes out to around 0.055%.

Interest on a line of credit

Usually, the interest rate on a line of credit is variable. This means it may go up or down over time. You pay interest on the money you borrow from the day you withdraw money, until you pay the balance back in full. Your credit score may affect the interest you'll pay on a line of credit.

Standard credit cards come with an interest rate ranging from 19.99%-22.99%, while low interest cards can be as low as 4.99% to 15.99%.

If your APR is 19.99%, your daily rate is 0.055% (19.99/365). Multiply your outstanding debt by this number to see how much interest you're charged daily. If you owe $1,000, for example, you'd be charged $0.55 per day. Your monthly payment is simply your daily payment multiplied by the days in the month.

Monthly Interest = (interest rate/12) x unpaid principal balance. Numeric example: if you have a mortgage loan with an outstanding principal balance of $300,000, an interest rate of 3% per year, and a term of 25 years, your monthly mortgage interest would be: Monthly Interest = (0.03/12) x $300,000 = $750.

How do interest rates work in Canada? Interest rates in Canada are determined by market conditions, inflation, costs of long-term deposits, competition for funds, and Bank of Canada policy.

The average credit card processing fee ranges between 1.08% and 2.90%.

It depends on the scoring model used. In Canada, according to Equifax, a good credit score is usually between 660 to 724. If your credit score is between 725 to 759 it's likely to be considered very good. A credit score of 760 and above is generally considered to be an excellent credit score.

One of the best low interest credit cards is the MBNA True Line Gold Mastercard offers the lowest interest rate on the market currently at 8.99%. With this card, you'll enjoy a low, fixed interest rate on purchases balance transfers, and cash advances.

Whether you travel to the U.S. or make purchases from U.S. retailers, spending south of the border means you'll be paying for things in U.S. dollars. You can use your Canadian credit card to cover your expenses, but it'll cost you. A U.S. currency credit card may save you money.

What is the average credit card limit in Canada? ›

Understanding High-Limit Credit Cards

For comparison, a recent Equifax Report indicates the average credit limit in Canada is around $5,800. Credit limits are based on several factors, including personal income, employment history, debt-to-income ratio, credit history and score, and credit utilization.

If you'd like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a credit card that offers a 0 percent intro APR on purchases for a time.

The annual percentage rate (APR) is the cost of borrowing on a credit card. It refers to the yearly interest rate you'll pay if you carry a balance, plus any fees associated with the card. APR often varies by card. For example, you may have one card with an APR of 9.99% and another with an APR of 14.99%.

For example, let's say you have an average daily balance of $500 with an annual interest rate for Purchases of 20%. Your daily interest rate would be 20% divided by 365, giving you about 0.0548%. To find how much interest you owe each day, multiply 0.0548% by $500, which gives you $0.274.

When you carry a balance from month to month, interest is accrued on a daily basis, based on what's called the Daily Periodic Rate (DPR). DPR is just another way of saying what your daily interest charge is, and is calculated by taking your credit card's APR and dividing it by 365, for all the days in the year.

Most casual visitors to Canada should use their credit cards for purchases and make larger ATM withdrawals, in Canadian dollars, at Canadian banks. Frequent travelers should talk to their banks about the best debit and credit cards for their trips.