Credit Card Interest Rates

Credit Card Interest Rates Charged By Top Banks

Cards Offering Lowest Interest Rates In India

When Is Interest Charged on Credit Cards?

If you pay the total amount due on your credit card before the due date, the interest charges will not be applied. Let us see the cases when the finance charges are applicable to credit card transactions.

• When you skip credit card payment for a month: When you do not make any credit card payment in a month, the bank will start charging interest on the total amount outstanding and also on all new transactions starting from the date of transaction till the time all the previous dues are paid completely.
• When you pay only the minimum amount due: If you pay only the minimum amount due on your credit card, interest will be charged on the outstanding amount and on all the new transactions till the previous balance is paid completely.
• When you pay less than the minimum amount due: If you pay an amount that is less than the minimum amount due, then the entire outstanding amount will attract finance charges along with all the new transactions until the current outstanding amount is paid completely.
• When you withdraw cash: Money withdrawn using a credit card is called a cash advance facility. The withdrawn amount will garner finance charges from the date the amount is withdrawn till the amount is paid back completely.
• When you carry forward the outstanding balance: If you have not cleared the outstanding bill of the previous month completely, then the remaining amount will be carried forward to the next billing cycle. In that case, interest will be charged depending on the repayment amount which can either be the minimum amount due or lower than the minimum amount due. It will also be charged on all the new transactions till the existing dues are paid completely.

How To Compute The Credit Card Interest Rate?

Interest is charged daily on the balance due in your account. Credit card interest is computed using the formula given below:

Credit Card Interest = [(Total Number of Days from the Transaction Date * Outstanding Amount * Credit Card Interest Rate Monthly x 12 Months)] ÷ 365 Days

Transaction Date: July 1, 2023

Transaction Amount: Rs. 20,000

Statement Date: July 6, 2023

Minimum Amount Due: (Usually 5 percent of retail purchases + other fee charges): (5 percent of 20,000) = Rs. 1000

Total Amount Due: Rs. 20,000

Amount Due Date: July 26, 2023

Assumed a monthly interest rate of 3.5 percent on unsettled credit card bill

Actual Bill Payment:

Case 1: Pay full bill amount prior to the due

• Bill amount fully paid on: July 21

Total Payment Made: Rs. 20,000

Calculation:

12/365] = 482.16

Total interest charged = 0

In this case, there is no interest charged, since the complete payment has been made before the due date.

Case 2: Payment Done Partially before the due date

Total payment made: Rs. 5000

Payment Date: July 21

Next Statement Date: August 6th

Transaction done between July 6th to August 6th: Nil

Calculation:

Interest levied for 21 days (Between July 1 and July 21): 482.16

Interest levied for 15 days (Between July 22 and August 6, on a balance of 15,000 [20,000 (Bill amount) - 5,000 (Payment made)]) = (15*15,000*3.5%*12/365) = 258.90411

Total Interest Charged = (258.90411 + 482.16) = 741.06411

Interest will be charged for the full amount of Rs. 20,000 till the first payment. Interest on balance amount (Rs. 15,000) will be levied for the next 15 days till the new statement is generated

Case 3: Partial Payment After the Due Date

Total Payment Made: Rs. 5,000

Payment Date: July 28th

Next Statement Date: August 6th

Transaction Between July 6th to August 6th: Nil

Calculation:

Interest levied for 28 days (Between July 1 and July 28) = (28 * 20,000*3.5%*12/365) = 644.38

Interest levied for 9 days (Between July 28th and August 6th on a balance of 15000) [20,000 (bill payment) - 5000 (Payment made)] = [9 * 15,000 * 3.5%* 12/365)] = 155.342

Interest will be charged for the complete amount of Rs. 20,000 till the first payment. Interest on the balance amount (Rs. 15,000) will be levied for the next 9 days until the new statement is generated. Moreover, late payment charges will also be levied as the minimum due amount was not paid on or before the amount due date.

Case 4: Partial payment post the due date and subsequent transactions done

Total Payment Made: Rs. 5,000

Payment Date: July 28

Next Statement Date: 6 August

Transaction made between 6 July to 6 August: 1

New Transaction amount: Rs. 1000

New Transaction Date: July 15

Calculation

The interest levied for 13 days (Between July 16th and July 28th) on a balance of 21,000 [20,000 (Outstanding bill amount from previous statement) + 1000 (New transaction) = [13 * 21000 * 3.5% * 12/365 = 314.13]

Interest charged for 9 days (Between July 28 and August 6 on a balance of 16,000 [21,000 (outstanding) - 5000 (Payment made)] = [9 * 16000 * 3.5% *12/365 = 314.13

Interest will be charged for the complete amount of Rs. 20,000 till the date of the first transaction. Then the interest will be charged on the total outstanding = (Value of consequent transaction + ‘Total Amount Due’ of the last statement) till you make the first payment. Interest on balance amount (Rs. 16,000) will be levied for the remaining number of days until the next statement is generated. Additionally, applicable late payment charges will also be levied.

What Is Credit Card Interest Free Period?

The credit card interest free period is the time taken between the bill cycle’s end to the payment due date. Usually, the credit card interest free period is up to 50 days. But, all transactions will not enjoy the same interest-free period.

Let us consider an example:

Conclusion

Credit cards offer multiple benefits in many ways. However, there are a few things which you should know while choosing the right credit card. Credit card interest rate is one such important factor.