Calculating credit card costs
Credit cards can help you manage your money, but they can also come with costs such as interest rate charges and late payment fees. Our guide explains more.
Key takeaways
Paying your balance in full and on time, as well as staying within your credit limit, will help you avoid fees and charges
There are a handful of golden rules to avoid credit card charges, such as never using the card to withdraw cash from an ATM
Our credit card calculator can give you an idea of how much your credit card will cost you based on your card’s interest rate
Some credit cards charge annual fees – often the cards that offer the most attractive rewards for spending
Credit cards can be a useful tool to help you manage your money, but there can be costs in the form of interest charges and other add-on fees.
The amount you pay for your credit card borrowing will depend on the type of card you have and how you use it, so ensure you understand how the different charges work before you use your card.
For example, if you clear your balance in full every month, you will avoid paying any interest on what you owe, whereas if you only make the minimum monthly repayments, interest charges can soon add up.
What credit card costs should I expect?
Here, we explain six credit card costs you need to be aware of when you get a credit card.
If you don’t clear your balance in full every month, you will be charged interest on what you owe, unless you have a card which has a 0% introductory rate on purchases.
The interest you’ll have to pay will depend on what card you have. But by way of a guide, typical standard credit card rates, known as the annual percentage rate (APR), are usually around 18% to 20%.
Our helpful credit card calculator can help you work out how long it will take you to clear your card balance based on the amount you pay off each month and your card’s APR. It can also show you how much it would cost you if you want to clear your balance by a certain date.
If you take cash out of a cash machine on your credit card (which is known as a ‘cash advance’) you will usually be charged a much higher rate of interest, for example, up to around 28%. What’s more, this interest will be charged from the moment you access the cash.
You could also be hit with a cash withdrawal or cash handling fee. These fees can be up to 5% of the amount you have taken out of the ATM depending on your provider. So, it’s best to avoid withdrawing cash on your credit card.
If you get a credit card to switch a balance from another, more expensive credit card, you’ll usually have to pay a balance transfer fee, of about 2% to 3%.
However, a number of providers now offer more competitive fees, and you’ll find that, if you go for a shorter interest-free offer, the fee might be lower.
Some credit cards, such as those offering cashback or other perks, will often charge an annual fee. The amount can vary widely, depending on the type of card and the benefits on offer.
Some cards will waive this fee for the first year. So before you apply, it may be worth calculating how much it will cost you in the second year and beyond, and whether this outweighs the benefits.
If you don’t pay at least the minimum repayment each month, you’ll be charged a missed payment fee of around £12. This will show up as a ‘default charge’ on your bill and could also damage your credit score.
If you go over your credit limit, you can also be hit with another fee of around £12.
You’ll usually have to pay more to use your card when you’re abroad, and this includes withdrawing cash.
Most credit card providers charge an exchange rate transaction fee of around 2.5 to 3% each time you use your card abroad, plus an additional 3% if you withdraw cash.
If you plan to use your card a lot when you travel, it’s worth looking for an overseas credit card which won’t charge you for spending abroad.
Fee or charge | Description | Typical cost or rate |
|---|---|---|
Annual fee | A yearly fee, often for rewards or premium cards | £0–£250+ depending on card type |
Purchase APR | Interest rate charged on unpaid purchases after the interest-free period ends | 19%–25% |
Balance transfer fee | Charged when transferring a balance from another card | 1%–3% of the balance transferred |
Cash advance fee | Charged for withdrawing cash using a credit card | 3%–5% or a minimum of £3–£5 |
Cash advance interest | Higher interest rate applied to cash withdrawals, with no grace period - interest accrues from withdrawal date | 25%–30% |
Foreign transaction fee | Charged for using your card abroad or for transactions in a foreign currency | 2.5%–3% of transaction value |
Late payment fee | Applied if you miss a payment deadline | £12 |
Over-limit fee | Charged if you exceed your credit limit | £12 |
Returned payment fee | Charged if a payment to the credit card is declined (e.g. due to insufficient funds) | £12 |
Interest rates
ATM withdrawal fees
Balance transfer fees
Annual fees
Late payment and credit limit fees
Fees for using your card on holiday
Can I be charged a fee by the retailer for buying with a credit card?
Additional charges for paying by credit or debit cards have been banned since 2018 in the UK.
If you encounter any extra fees, make sure to raise a complaint with the merchant and request a refund. If the issue persists, you can contact the Citizens Advice consumer helpline for further assistance.
It's worth noting that charges may still apply if your bank or the seller's bank operates outside the European Economic Area (EEA) or if you're using a business card. To verify the countries within the EEA, refer to the list available on Gov.uk.
How can I keep my credit card costs down?
An effective way to keep your credit card costs down is to use your card responsibly. This means making payments on time and clearing your balance in full.
By paying your balance in full every month, you won’t have to pay any interest on top of what you owe. If you don’t pay your balance in full, the interest charges can start to mount up and make your credit more costly.
It’s also important to make sure you’re making payments on time or you’ll be faced with a missed payment fee. Use your credit card sensibly and keep an eye on your credit limit. Going over your credit limit can also incur a charge.
Other ways to keep credit card costs low is by not using them to withdraw cash. Use your debit card instead. Standard credit cards will usually charge you for using them abroad. Instead, avoid an unnecessary credit card cost by getting a travel credit card which are specifically designed to be used abroad.
How can I calculate my credit card costs?
Our credit card calculator can give you an idea of how much your credit card will cost you based on your card’s interest rate.
It can also help show you how long it will take to pay off your credit card balance in full and how much it will cost you in total interest charges.
Can I get a low rate credit card?
If you’re looking to keep credit card costs down then a low rate card could be an option. Low rate cards are more commonly known as low-interest or low-APR credit cards. These cards are a good choice as a cheaper credit card because they offer low interest rates, which help to keep your repayments manageable if you can’t repay the balance in full every month.
However, it’s important to know that you might not get the advertised APR rate for a low-rate credit card. This is because when you apply for a low-rate card, the lender will base their decision on your credit rating and financial circumstances.
You could be eligible for a 0% interest card – either for new purchases, to transfer an existing card balance or a combination of both.
You’ll typically need a strong credit score to be accepted for a 0% card, but they can help with budgeting and give you some breathing space to pay off debt.
Personal Finance Expert
Our expert says
“Fees and charges are how credit card providers make their money, but most of them can be avoided if you are savvy in the way you use your card.
"First, understand what fees can be levied and when, and then take steps to avoid being subject to them – such as setting up direct debits to clear your balance or app notifications when you’re nearing your credit limit.”
Other useful guides
Here at MoneySuperMarket, we have a range of useful guides to help you better understand credit cards:
Compare credit cards with MoneySuperMarket
If you’re looking to apply for a credit card, make sure you get the best card for your needs.
You can search our wide range of card deals from leading UK lenders. And searching won’t affect your credit score in any way. We’ll show you your chances of being accepted – and if you’re pre-approved for any cards.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers.
What is the average cost of a credit card?
While some rewards credit cards do come with annual fees, most credit cards in the UK are free to receive once you have been approved.
How much they then cost the customer depends on how they are used, the type of card and the interest rates and any additional charges associated with the card's features.
It's recommended to compare different credit cards to find the one that best suits your needs and read the terms to understand when you might be charged extra and how much it will be.
How do you pay off a credit card?
To pay off a credit card, you make regular monthly payments either online, by phone, or through automatic direct debits.
A direct debit is often the best way to pay off the card because it rules out the chances of forgetting to make a payment and being charged a missed payment fee.
You can usually set up a direct debit to pay off the minimum amount, a set amount or the full balance each month. Paying more than the minimum can help reduce interest charges and pay off the balance faster.