Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
Also termed as finance charges or interest charges, credit card interest rate is the rate charged by credit card issuers on the borrowed amount. 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 (MAD) or even lesser than that, then the bank will levy finance charges as per its policy.
The good thing about using credit cards is that if you clear the entire outstanding on the card before the due date, you won’t be charged any interest. But if you’re someone who wishes to clear the dues at your own pace, you must know how much interest your bank charges, how it’s calculated and all other related information.
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.
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.
Let’s see the consequences of each case in detail.
The following example will help you understand how the credit card interest is calculated when you don’t pay anything towards the outstanding.
| Transaction | Amount (Rs.) |
|---|---|
| Purchase made on 10 January, 2018 | Rs.5,000 |
| Total amount due on statement dated 15 January, 2018 | Rs.5,000 |
| Minimum amount due on statement dated 15 January, 2018 (MAD is typically 5% of the TAD) | Rs.250 |
| Payment due date – 3 February 2018 |  |
| Purchase made on 7 February, 2018 | Rs.1,000 |
| Purchase made on 10 February, 2018 | Rs.500 |
| On the next statement dated 15 February, 2018, 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) | |
Now that we know about credit card interest rates and how they are calculated, let’s see the interest rates charged by various banks.
| Bank Name | Credit Card Interest Rate | |
|---|---|---|
| Monthly Percentage Rate (MPR)% | Annual Percentage Rate (APR)% | |
| HDFC Bank | 1.99% to 3.49% | 23.88% to 41.88% |
| ICICI Bank | 1.25% to 3.50% | 15% to 42% |
| SBI Bank | Up to 3.35% | Up to 40.2% |
| Axis Bank | 2.50% to 3.25% | 34.49% to 46.78% |
| HSBC Bank | 2.49% to 3.50% | 29.88% to 42% |
| Amex Bank | 1.99% to 3.50% | 23.88% to 42% |
| Citibank | 3.10% to 3.50% | 37.20% to 42% |
| IndusInd Bank | Up to 3.83% | Up to 46% |
| Kotak Mahindra Bank | Up to 3.5% | Up to 42% |
| RBL Bank | Up to 3.5% | Up to 42% |
| Yes Bank | 1.20% to 1.99% | 14.40% to 23.88% |
*The credit card interest rates are subject to change and will be revised at the sole discretion of the bank.
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 hence varies for every transaction made on your credit card. Typically 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. This means you have enjoyed the credit facility at zero interest.
Let’s see how the credit card grace period is calculated. For instance, a particular 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 the cardholder 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. And for all the subsequent transactions, the grace period will get reduced based on the transaction date. This means a transaction done on the 1st of June will have a grace period of only 24 days. Thus 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.
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