Credit cards give you time to pay without extra charges, usually 20 to 50 days. But if you don't pay the full amount or withdraw cash, you'll be charged interest. This extra cost is called a finance charge. It's important to understand when and how it's applied.
The credit card interest rate, also called a finance charge, is what you pay for transactions outside the interest-free period. It differs between card issuers and even among different cards from the same issuer. Unlike annual fees, these charges depend on your card usage. They're only added if you don't fully pay your credit card bill. It's crucial to know the interest rate before getting a card, so you understand when and how much you might be charged.
Interest rates on credit cards are charged when you have an outstanding balance or if you've taken a cash advance. Here are the situations where this can happen:
Keep in mind, if you carry over balances to the next billing cycle, new purchases won't qualify for the interest-free period. This means you'll start accruing interest on new purchases right from the first day.
The credit card interest-free period spans from the end of the bill cycle to the payment due date, typically up to 50 days, offered by credit card issuers. However, not all transactions enjoy the same interest-free period. It depends on the day you make the transaction.
For instance, if your statement date is the 20th of each month and the bill is due on the 10th of the following month, a transaction made on the 10th of the previous month would benefit from the full 50-day interest-free period. However, a purchase made on the 10th of the current month, just 10 days before the statement date, would only have 10 days of interest-free period. Similarly, a transaction made on the 19th would only have 1 day of the interest-free period.
The interest-free period doesn't apply in these cases:
Interest on credit cards is calculated daily as long as you have an outstanding balance. Here's an example to help you understand how your card issuer charges interest:
The calculation of interest rates in the given scenarios is as follows:
1. If the user paid the full amount due on their credit card by April 26, 2024– No interest charges will be applicable.
2. If the user made a partial payment before the due date, i.e., April 26, 2024:
Let's consider a scenario where the card user made a partial payment of Rs. 5,000 on April 21st, and no further transactions occurred before the next statement date, which is May 6th.
In this case, interest is applicable on the initial Rs. 10,000 balance for 21 days, from April 1st to April 21st, and on the remaining Rs. 5,000 balance for 15 days, from April 22nd to May 6th.
The interest calculation is as follows:
| Interest charged on Rs. 10,000 for 21 days: | [(21 x Rs. 10,000 x 3% x 12)] ÷ 365 days | Rs. 207.12 |
| Interest charged on the Rs. 5,000 balance for the next 15 days: | [(15 x Rs. 5,000 x 3% x 12)] ÷ 365 days | Rs. 73.97 |
| Total interest payable: | Rs. 207.12 + Rs. 73.97 | Rs. 281.09 |
3. If the user made a partial payment after the due date, i.e., April 26, 2024:
In this scenario, let's consider that the user paid Rs. 5,000 on April 28th and made no further transactions with the credit card until the next statement date, which is May 6th.
Interest will be applicable on the initial sum for 28 days, from April 1st to April 28th, and also on the remaining balance for 9 days, from April 28th to May 6th.
Now, let's calculate the interest charges based on this information.
| Interest charged on Rs. 10,000 for 28 days | [(28 x Rs. 10,000 x 3% x 12)] ÷ 365 days | Rs. 276.16 |
| Interest charged on the Rs. 5,000 balance for the next 9 days | [(9 x Rs. 5,000 x 3% x 12)] ÷ 365 days = | Rs. 44.38 |
| Total interest payable: | Rs. 276.16 + Rs. 44.38 | Rs. 320.54 |
4. If the user made a partial payment after the due date and used the card for fresh transactions, the interest rate calculation will be as follows:
Now, let's consider a scenario where the user made fresh transactions with the credit card totaling Rs. 2,000 on April 15th and made a partial payment of Rs. 5,000 on April 28th. We need to calculate the interest rate based on these transactions.
| Interest charged on the outstanding balance for 15 days | [(15 x Rs. 10,000 x 3% x 12)] ÷ 365 days | Rs. 147.94 |
| Interest charged on new outstanding balance with a fresh transaction for 13 days | [(13 x Rs. 12,000 x 3% x 12)] ÷ 365 days | Rs. 153.86 |
| Interest charged on balance after partial payment for 9 days | [(9 x Rs. 7,000 x 3% x 12)] ÷ 365 days | Rs. 62.14 |
| Total interest payable: | Rs. 147.94 + Rs. 153.86 + Rs. 62.14 | Rs. 363.94 |
| Credit Card | Interest Rate per month | Annual Percentage Rate (APR) |
|---|---|---|
| HDFC Bank Diners Club Privilege | 3.6% | 43.2% |
| HDFC Millennia Credit Card | 3.6% | 43.2% |
| HDFC Regalia Credit Card | 3.6% | 43.2% |
| Amazon Pay ICICI Credit Card | 3.5% to 3.8% | 42% to 45.6% |
| HSBC Cashback Credit Card | 3.50% | 42% |
| Flipkart Axis Bank Credit Card | 3.4% | 49.36% |
| Axis Bank Ace Credit Card | 3.6% | 52.86% |
| SBI Card ELITE | 3.50% | 42% |
| Cashback SBI Credit Card | 3.75% | 45% |
Please note that the interest rates mentioned above are subject to change at the bank’s discretion.
It's essential to understand that interest charges on your credit card only apply if you don't pay your bill in full. As long as you consistently pay your credit card bill in full and on time, you'll enjoy the interest-free period on your credit card. Therefore, if you're a responsible card user, you won't have to worry about credit card finance charges.
The interest-free period on your credit card is a valuable benefit that can help you manage both everyday and occasional expenses. By using your credit card wisely and responsibly, you can make the most of this benefit. Remember to pay your credit card bill on time and in full and to spend within your means to maximize the advantages of having a credit card.
| Credit Card | Interest Rate p.m. |
|---|---|
| Axis Burgundy Private Credit Card | 1.50% |
| Axis Bank Magnus Credit Card | 2.50% |
| HDFC Infinia Credit Card Metal Edition | 1.99% |
| HDFC Diners Club Black Credit Card | 1.99% |
| Kotak Privy League Signature Credit Card | 2.49% |
Yes, interest will still be charged on the remaining balance even if you pay only the minimum amount due on your credit card.
Interest rates on credit cards typically range from 2.5% to 3.5% per month. However, these rates can vary depending on the issuer and the specific card you have. It's important to pay your credit card bill in full and on time to avoid being charged interest.
Interest is applicable on your credit card when you carry over an outstanding amount to the next billing cycle. In such cases, new purchases will also start accruing interest from t he day of the transaction.
Interest is compounded on the outstanding balance on a daily basis. This means that every day, the interest rate is calculated based on the amount that remains unpaid on your account. The charge, though small, is added to your balance the next day, where it becomes part of the amount on which interest will be calculated for the following day. This process continues daily.
You should always aim to pay your credit card bill in full on or before the due date to avoid paying any interest on the remaining balance.
Yes, the interest rate on your credit card is charged monthly, based on a daily reducing balance. This means that if you have an outstanding balance in your credit card account due to incomplete payment by the due date, you'll be charged interest. For a clearer understanding, you can refer to the illustration of credit card interest rates.
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