Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
The interest rate on a credit card is also called a 'finance charge’ and is the rate charged by credit card issuers on the amount that has been borrowed. However, the interest charges are applicable only to those cardholders who don’t pay their outstanding in full. For instance, if your credit card bill amount for a previous billing cycle is Rs.10,000 and you wish you make a partial payment, either minimum amount due or even lesser than that, then the bank will levy finance charges as per its policy.
Credit card interest rate is calculated as the Annual Percentage Rate (APR) of charge. It is the interest rate for the whole year rather than a monthly rate. However, while calculating interest rate for monthly dues, the monthly percentage rate (MPR) will be applied to the transactions. The APR and MPR vary from one bank to another and one card to another. While applying for a credit card, it’s important to know how much APR is being charged on a particular card.
(Number of days counted from the date of transaction x outstanding amount x Interest rate per month x 12 month)/365.
| Bank Name | Monthly Percentage Rate (MPR)% | Annual Percentage Rate (APR)% |
|---|---|---|
| HDFC Bank | 3.40% | 40.80% |
| ICICI Bank | Differs from one credit to another. Interest rates range between 2.49% to 3.67% | Differs from one credit to another. Interest rates range between 29.88% to 44% |
| SBI Bank | Up to 3.50% | Up to 42% |
| Axis Bank | 3.40% | 40.8% |
| HSBC Bank | At the discretion of the bank | At the discretion of the bank |
| Citibank | 3.75% | 45% |
| IndusInd Bank | Up to 3.83% | Up to 46% |
| Kotak Mahindra Bank | Up to 3.5% | Up to 42% |
| RBL Bank | Up to 3.99% | Up to 47.88% |
| Yes Bank | 1.20% to 2.4% | 14.40% to 28.8% |
As mentioned earlier, if you pay the total amount due (TAD) on your credit card before the due date, the interest charges will not be applied. Let’s see the cases when the finance charges are applicable on credit card transactions.
Case: 1 - When you make no credit card payment: When you entirely skip your credit card payment in a month, the bank will start charging interest on the total amount due as well as on all the new transactions from the date of transaction till the time all the previous dues are paid in full.
Example:
| Transaction | Amount (Rs.) |
|---|---|
| Purchase made on 10 January, 2021 | Rs.5,000 |
| Total amount due on statement dated 15 January, 2021 | Rs.5,000 |
| Minimum amount due on statement dated 15 January, 2021 (MAD is typically 5% of the TAD) | Rs.250 |
| Payment due date – 3 February 2021 | |
| Purchase made on 7 February, 2021 | Rs.1,000 |
| Purchase made on 10 February, 2021 | Rs.500 |
| On the next statement dated 15 February, 2021, interest charges will be levied as follows | |
| Interest on Rs.5000 for 30 days (from 10th January to 10th February) | |
| Interest on Rs.1,000 for 9 days (from 7th February to 15th February) | |
| Interest on Rs.500 for 6 days (from 10th February to 15th February) | |
Credit card interest-free period or grace period is the time between the credit card transaction date and the credit card payment due date. It varies for every transaction made on your credit card. The interest-free period ranges from 20 to 50 days. If you make the payment within the interest-free period, i.e., on or before the due date, you don’t have to pay any interest.
Example:
The rate of interest for various credit cards may change at the discretion of the bank with notice given by the bank.
No, various credit cards belonging to the same bank can have different interest rates depending on the annual fee, joining fee and other facilities offered by the bank.
No, an interest-free period will be given at the discretion of the bank.
If you make the payment after the interest-free period or the due date, you will have to pay an interest that the bank will levy finance charges as per its policy.
Yes, when you pay only the minimum amount due, you incur an interest charge on the amount from day one and also lose out on the benefit of the credit-free period. Keep in mind that your available credit limit will be deducted to the extent of the amount you have not paid.
The main reason why interest rates on credit cards are high is because of the risk to the bank. If you do not pay your credit card bill, the credit card issuer will have to bear the burden of the same until you do.
Paying a credit card bill through equated monthly instalments (EMIs) would mean that you are converting your credit card dues into a loan. You can convert the bill amount into EMIs or choose specific card transactions that go above a threshold.
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