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Credit cards, BNPL and buying on terms
How credit card interest-free periods and daily interest work, buy now pay later and its fees, buying on terms with a deposit and instalments, flat interest rates, and comparing ways to pay.
Paying later always has a price. Sometimes it's zero, if you follow the rules exactly. Often it's interest or fees that add hundreds of dollars to a purchase. Lenders count on people not doing the maths in this section.
Credit cards
A credit card lets you spend the bank's money and pay it back later. Each month you get a statement, and a due date by which to pay. Most cards offer up to 55 interest-free days on purchases: the time from the start of the statement period to the due date. But there is a catch:
- Pay the full statement balance by the due date, and you pay no interest.
- Pay anything less, and on most cards you lose the interest-free period. Interest is charged from the day of each purchase.
- Cash advances (taking cash out with the card) have no interest-free days at all, plus a fee.
Card interest is quoted per year, typically about $20\%$ p.a., and charged daily.
Nina buys a $\$1200$ laptop on day 5 of her statement period. The card charges $20.99\%$ p.a., the statement closes on day 30 and the due date is day 55. She pays only $\$400$ on the due date. Find the interest on her next statement (day 60).
With the payment at $\$1200$ (in full), move the purchase day. When do you get the most interest-free days, and how many?
Now pay $\$1150$ instead, just $\$50$ short. How much interest does that cost? Check Example 1 by setting day 5 and a $\$400$ payment.
Buy now pay later
Buy now pay later (BNPL) services split a purchase into instalments, commonly $4$ payments a fortnight apart. There is usually no interest, but a missed payment costs a late fee. Since June 2025, BNPL providers in Australia must hold a credit licence and check that customers can afford the repayments, because many young people were using several BNPL accounts at once.
Buying on terms
Stores selling furniture, phones and appliances often offer terms: a deposit now, then regular instalments. The extra you pay above the cash price is interest.
To compare with other loans, find the flat interest rate using $I = Prn$, where $P$ is the amount borrowed (cash price minus deposit) and $n$ is the time in years.
A TV costs $\$1800$ cash, or on terms with a $10\%$ deposit and $52$ weekly payments of $\$35$. Find the total paid on terms, the interest, and the flat interest rate.
Check Example 2. Then raise the weekly payment to $\$42$. What flat interest rate is that?
How many missed BNPL payments make BNPL cost more than cash? Is there any setting where terms beats cash?
Your turn
A fridge costs $\$2000$ cash, or a $10\%$ deposit and $104$ weekly payments of $\$19.50$. Find the extra cost of terms and the flat interest rate.
Show the working
Deposit $\$200$. Total: $200 + 104 \times 19.50 = 200 + 2028 = \$2228$. Extra: $\$228$. Borrowed: $\$1800$ for $2$ years. $r = \dfrac{228}{1800 \times 2} \approx 0.0633$, so about $6.3\%$ p.a.
A card charges $18.25\%$ p.a. Find the daily interest rate, as a percentage.
$18.25 \div 365 = 0.05\%$ per day.
Find the interest on a balance of $\$600$ for $30$ days at $21.9\%$ p.a., charged daily.
Daily rate: $0.219 \div 365 = 0.0006$. Interest: $600 \times 0.0006 \times 30 = \$10.80$.
The due date is day 55 of a card's cycle. A purchase is made on day 12 and paid in full on the due date. How many interest-free days is that?
$55 - 12 = 43$ days.
Which statement about most credit cards is true?
Missing the full payment usually cancels the interest-free period, so interest runs from each purchase date. Cash advances have no interest-free days.
A laptop is bought on terms: $\$150$ deposit and $24$ monthly payments of $\$60$. Find the total paid.
$150 + 24 \times 60 = 150 + 1440 = \$1590$.
The same laptop costs $\$1400$ cash. How much interest is paid on terms?
$1590 - 1400 = \$190$.
$\$1250$ is borrowed and $\$190$ interest is paid over $2$ years. Find the flat interest rate, as a percentage per year.
$r = \dfrac{I}{Pn} = \dfrac{190}{1250 \times 2} = 0.076$, so $7.6\%$ p.a.
A $\$640$ phone is bought with buy now pay later in $4$ instalments. One payment is late and a $\$10$ fee is charged. Find the total paid.
$640 + 10 = \$650$. The instalments themselves carry no interest.
Exam style: A $\$900$ purchase is made on day 10 of a credit card cycle at $20.99\%$ p.a. Nothing is paid until day 60. Find the interest charged for those $50$ days, to the nearest cent.
$900 \times \dfrac{0.2099}{365} \times 50 \approx \$25.88$.
Exam style: A sofa costs $\$2400$ cash, or a $15\%$ deposit and $78$ weekly payments of $\$30$. Find the flat interest rate, as a percentage to 1 decimal place.
Deposit: $0.15 \times 2400 = \$360$. Total: $360 + 78 \times 30 = \$2700$. Interest: $\$300$. Borrowed: $2400 - 360 = \$2040$ for $78 \div 52 = 1.5$ years. $r = \dfrac{300}{2040 \times 1.5} \approx 0.098$, so $9.8\%$.