Credit cards are one of the easiest financial tools with the help of which, you can cover your immediate financial needs. But a few people are still unaware of the fact that you have to pay an interest amount on the transactions that you do using your credit card if you do not pay back the amount by the payment due date. Therefore, the interest rate is one of the most important credit card features that affect the cost of carrying a balance on a credit card that you would likely want to minimize.
Credit card interest rate and interest charge calculation is quite a complex thing sometimes people have a fear of understanding such figures. They simply pay the amount that is billed to their credit card. Therefore, with the help of this article, we will try to make you understand everything about credit card interest rates so that you have a better understanding of this and then you will be easily able to choose the best credit card for yourself. Keep reading the article to know more about the same.
Credit Card Interest Rate: Meaning
Also known as ‘Finance Charge’, the credit card interest rate is the price that you pay to the credit card issuing companies for borrowing money from the credit card. This interest rate is charged only to those applicants who do not pay the complete bill amount by the due date. For example – If an individual is supposed to pay a credit card bill of Rs. 20,000 by the due date and if because of any reason, he does not pay the full amount but pays either the minimum due amount or an amount that is less than the full amount, interest charges will be levied on the outstanding amount which the credit cardholder will have to pay in the next billing cycle along with the amount that is already due.
Calculation of Interest Rate
In India, the credit card interest rate is calculated as per the Annual Percentage Rate (APR). Rather than monthly interest rates, credit card interest rates are calculated for the whole year. But while determining interest rates for monthly transactions, the monthly percentage rate (MPR) will be applied. These interest rates are not the same for all banks, rather these rates differ from bank to bank and even from card to card. You are informed by the credit card issuer about this rate whenever you apply for a new credit card.
Transactions on Which Interest Charge is Levied
Not all the transactions that we do use a credit card levy interest charges but there are some specific transactions on which interest charges will be applicable. Following is the list of those transactions –
- Whenever a credit cardholder fails to pay the full credit card bill amount by the due date, an interest charge will be applicable on such amount.
- If in case you pay the minimum due amount against the total billed amount, then the interest charge will be applicable on the balance amount.
- When credit cardholders pay an amount that is higher than the minimum due amount but exceeds the minimum due amount, in that case as well, credit cardholders will have to pay interest charges on the balance that is yet to pay.
- Whenever a credit cardholder withdraws cash through ATM using his credit card, the interest charge will be levied on such transaction as well. In this case, interest will start accumulating from the day on which the cash is withdrawn using a credit card and till the day the payment is made.
Credit Card Interest-Free Period: Meaning
Credit Card Interest-Free period is a period when no interest is charged on the transactions that you make using a credit card. This is the time period between the day on which you make a credit card transaction and the day on which your credit card bill payment is due. The interest-Free period is not the same for all the transactions that you make using your credit card but is different on the basis of the date on which you make the transaction. It generally ranges between 21-45 days depending on the date on which the transaction is made.
Credit card interest rate is one of the crucial factors when an individual uses a credit card. Any delay in the bill payments can lead to a hefty attraction of interest charges that the credit cardholder will have to pay in the next billing cycle. Certain transactions such as not paying the bill in full, availing of cash advance facility, etc attract interest charges. Therefore, cardholders should take care to pay off their bills in time and should try to use a credit card in such a way that they get the maximum interest-free period and have ample time to collect money to pay by the bill due date.