Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
  • Credit Card Interest Free Period Calculation

    Credit cards are one financial product that have revolutionised the world today. These plastic cards allow individuals to borrow money against a line of credit. Credit cards have become an essential item that every individual wishes to possess. However, credit cards can also be very detrimental to an individual’s financial state if misused. Customers must ensure that all their credit card dues are paid on time, without any delays, as this would result in their having to pay an additional amount. Also, cardholders are advised to pay more than the minimum due amount every month as paying just the bare minimum would result in dues just piling up. Individuals who opt for risk free methods prefer to pay through debit cards. However, credit cards are needed for individuals as they are a significant contributor to their credit score.

    Additionally banks would encourage individuals to pay for their purchases through credit cards as they would earn a commission from the merchant.

    Coming to interest free period, this period can last for a period ranging from 45 days to 55 days depending on the company and the credit card procured. In case individuals do not pay the complete bill amount prior to the completion of the interest free period, they will have to pay an interest on the amount at a rate of 2% to 3% a month. A number of individuals are not aware of the way interest free periods work, resulting in their becoming defaulters.

    How are Interest Free Periods Calculated?

    An interest free period begins with the first day of the billing cycle, which is also known as the statement period. This interest free period will end about 15 to 25 days after the last day of the billing cycle. A credit card bill or statement will have all details of the total amount that is outstanding, at the end of the interest-free period, date on which statement was generated, all purchases that were made and the due date which is the date when the interest-free period ends.

    This bill cycle lasts for a month from the day the bill for the credit card was generated. Individuals can check the date on which the statement was generated at the right hand top corner of the bill. However, the interest free period of 45 days to 55 days is actually the time available for credit cardholder to pay his/her dues and does not mean that the every purchase made from that credit card has those days that are interest-free.

    For example, in case the statement was generated on the 24th of March, then the statement period is from 24th March to 23rd April, and the due date for the payment is 10th May; the last day of interest-free payment for purchases made between 24th March to 23rd April is 10th of May. Therefore, in case a purchase was made on 24th March, then the interest free period is 47 days but if the purchase was made on 23rd April, then the interest free period is only for 18 days.

    How can this Interest Free Period be used?

    Customers can make the most of this interest free period and ensure that they do not have to pay an extra amount more than what they owe unduly.

    Plan and Purchase

    Customers should plan their spending so that they have a longer interest-free period ahead of them. For example in the case above, if applicants wish to purchase something on the 20th of April, they can push it to the 24th of April so that it is on the first day of the next billing cycle. The payment for this can be made on 10th June instead of 10th of May.

    By pushing the purchase by 4 days, customers can save around Rs.8,000 more in their credit card bill during May. In case customer’s already have a backlog of payments, the additional amount would result in an additional financial burden.

    Multiple Credit Cards

    In case an individual has two credit cards and both of these have different billing cycle, they can plan all their purchases in such a way that they can get a longer interest-free period. This requires some careful planning and understanding of the way credit card interest free period works.

    Credit cards are very popular and useful, apart from coming with a number of unique benefits and perks. But, customers must ensure that they pay all the required bills on time, else they may plunge into the vicious cycle of debts. If they fail to pay their credit card bills on time, they will be charged a higher amount of interest.

    Credit cards are provided by almost every major financial company and banks and are very versatile. These cards come with unique benefits and features. However, if individuals do not pay their bills on time, they will have a hard time getting out of the debt cycle and are therefore advised, to understand every nuance of the way credit cards work, prior to procuring one or using one.

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