Why is there a 50 - 60 day interest free period on credit cards?

PeterOHanrahanrahan

Not that I'm complaining about it, but out of general interest...
Is there a reasoning why most card providers provide up to 60 days interest free on credit card purchases paid off in full - is this just the norm, or is it due to legislation?

lisyloo

The cynical view would be that they are hoping it's long enough for people to forget and accrue interest.

PeterOHanrahanrahan

That's one way of looking at it, but I guess there'd always be the option to start charging interest the day the transaction is made, unless that wouldn't be allowed...

[Deleted User]

If they charged interest from day 1, transactors would stop using their cards, which means the lenders would lose the merchant fees.

eddddy

It's just a free incentive to try to persuade people to use credit cards.

(A bit like all the other offers you see saying things like "first month free".)

The banks still make money by getting a percentage of the transaction from the merchant, and from those people who don't then pay the full amount - for whatever reason.

PeterOHanrahanrahan

Thanks, fair enough. As this 'incentive' seemed to be pretty much universal across all card providers I thought there might have been some regulatory requirement to provide it. But that makes sense

grumbler

PeterOHanrahanrahan wrote: »

Is there a reasoning why most card providers provide up to 60 days interest free on credit card purchases paid off in full - is this just the norm, or is it due to legislation?

As it's most, not all, then obviously it's not due to legislation.

PeterOHanrahanrahan

grumbler wrote: »

As it's most, not all, then obviously it's not due to legislation.

There's only one I can think of off the top of my head from Lloyds, but yes point taken.

Tixy

I would guess it originally came about as a evolution from old charge cards.

bigadaj

Surely it's just a rare case of retail customers experiencing a business invoicing system.

You accrue purchases until the end of the month whenever the statement date is, like you would with any business. Terms of trade then define a payment period, typically 28 days. So you only get the long interest free period if you time the transaction correctly.

From the businesses perspective then it's a basic form of factoring, the merchant fees meaning a limited time for payment and also a lower risk of default.

To a consumer these might seem like minor issues, but with many businesses subject to 90 or 120 day payment terms then cash flow is king.

shortcrust

People who clear their balance every month must be able to do that without paying interest or they'd use debit cards instead. Those who borrow on their cards don't care about the interest free period. The interest free period simply allows a single product to be a charge card for some people and a flexible loan to others. And of course they hope that one will lead to the other.