Credit Card Interest Rates

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.

How are Credit Card Interest Rates Calculated?

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.

Credit Card Interest Rates by Top Banks

When is Interest Charged on Credit Cards?

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 July, 2023	Rs.5,000
  Total amount due on statement dated 15 July, 2023	Rs.5,000
  Minimum amount due on statement dated 15 July, 2023 (MAD is typically 5% of the TAD)	Rs.250
  Payment due date – 3 August 2023
  Purchase made on 7 August, 2023	Rs.1,000
  Purchase made on 10 August, 2023	Rs.500
  On the next statement dated 15 August, 2023, interest charges will be levied as follows
  Interest on Rs.5000 for 30 days (from 10th July to 10th August)
  Interest on Rs.1,000 for 9 days (from 7th July to 15th August)
  Interest on Rs.500 for 6 days (from 10th July to 15th August)

• Case: 2 – 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 remaining amount and on all the new transactions till the previous balance is paid in full.
• Case:3 – When you pay less than MAD: If you wish to pay an amount that is less than your minimum amount due on your credit card, the entire outstanding amount will attract finance charges along with all the new transactions, till the previous outstanding amount is cleared in full.
• Case: 4 – When you withdraw cash: If you withdraw cash using your credit card, you are availing the cash advance facility, hence, the withdrawn amount will attract finance charges from the date of withdrawal till the amount is paid back in full.
• Case: 5 – When you carry forward outstanding: If you haven’t cleared your previous month’s outstanding in full, the bank will carry forward the remaining amount to the next billing cycle. In such cases, based on the repayment amount, either MAD or less than MAD, the interest rate will be charged on the outstanding as well as on all the new transactions, till the previous dues are cleared completely.

Credit Card Interest-free Period

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:

• A credit card has an interest free period of up to 50 days. The billing date on the credit card, for instance, is the 5th of every month.
• This means you can spend on this credit card from 6th May to 5th June and he will be billed on the 5th June. His payment due date, considering the 50-day interest-free period, will be 24th June.
• If you calculate from 6th May to 24th June, you will get a period of 50 days, which is nothing but the interest-free period.
• This means only the transactions done on the first day of the billing cycle, which is 6th May, will have an interest-free period of 50 days. For all subsequent transactions, the grace period will get reduced based on the transaction date. A transaction done on the 1st of June will have a grace period of only 24 days.
• The minimum grace period, in this case, is 20 days applicable for a transaction done on 5th June. Thus, grace period or interest-free period varies from one transaction to another.
• The interest-free period is not applicable if the previous month's dues are not cleared and carried forward to the current month. Even for cash advances, there is no interest-free period. Finance charges will be levied on the withdrawn amount from the date of withdrawal till the amount is paid back in full.

FAQs on Credit Card Interest Rates

1. Will the rate of interest for credit cards change frequently?

   The rate of interest for various credit cards may change at the discretion of the bank with notice given by the bank.

2. Do all credit cards of the same bank have the same interest rate?

   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.

3. Will all credit cards have an interest-free period?

   No, an interest-free period will be given at the discretion of the bank.

4. What is the interest rate on credit card after due date?

   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.

5. Do you get charged interest if you pay minimum payment?

   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.

6. Why is credit card interest so high?

   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.

7. Can I pay my credit card balance in instalments?

   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.