Credit Card Interest Rates

Credit cards are one of the best cash alternatives that can change your life for the better and it is provided to customers by financial institutions and banks. A credit card issuer allows a cardholder to make purchases on credit. The due amount is added to the monthly billing cycle of a card, which a customer has to pay. The purchases that you make using a credit card are short-term unsecured microloans and if you pay the loans within a certain time, you do not have to pay any interest. A PIN system is present on the credit card to authenticate the transaction process using a credit card. Credit cards are present in two kinds, such as standard credit cards; other credit cards are specialized credit cards, reward points cards, general cards, and cash-back cards. Some of the cards are discussed as follows:

1. Standard credit cards: These credit cards are simple and have some basic features with nominal annual fees or no nominal annual fees.
2. Specialized credit cards: These credit cards are made to meet the needs of a cardholder. Specialized credit cards incorporate those credit cards that offer fuel cost savings, travel privileges, dining benefits, and so on.
3. Reward points cards: The reward points cards provide reward points to a cardholder for each purchase. You can earn more reward points on your every spending. You can redeem these points in gift vouchers, coupons, and many others.
4. General cards: The General cards consist of basic features and less annual fees. Such cards can make your life better if you utilize them on a daily basis.

Credit card interest rates are called by the other name of finance charges; the interest rates differ in the case of distinct cards from the same issuer. Just before Applying for a Credit Card, you ought to be aware of the interest rates that are charged on it. The interest rates of the credit card are not linked to the credit score of a user and its repayment capacity. All the credit cards have a set finance charge and it would remain the same for every customer. The interest rate on a credit card is charged based on the amount that you utilize from your credit card to make purchases. If you do not pay the interest rate that is charged to your credit card, you may not be able to use it in your life. If you are applying for a credit card for the first time, you can talk to the bank's representative about the interest rates that are charged on a credit card.

The credit card interest rates that are present in the top banks of India are given as follows:

Banks charge interest rates on your credit card daily until your outstanding balance stays in your bank account. However, it can make the calculation process of the interest rate complicated.

Just to give a better understanding of how the issuer of your credit card charges the interest rates, the following two examples are given:

Example 1:

In this example, we are assuming that a person has 2000 INR as an outstanding balance, the date of the credit card statement is the 19th of each month and 2.5% is the interest rate per month.

Just as 2000 INR is the outstanding amount in this account, the outstanding balance would incur an interest charge on the credit card.

• The interest on 15000 INR @2.5% p.m. from the time of 19 July to 16 August (that is for 28 days): [(15000x 2.5 x12 x 28)/365]/100 = 345.20 INR
• On the other hand, the interest on 13000 INR @2.5 % from 16 August to 18 August (that is for 3 days): [(13000 x 2.5 x 12 x 3)/365]/100 = 32.05 INR
• The interest on 5, 000 @2.5% p.m. from 16 July to 18 August (that is for 30 days): [(5000 x 2.5 x 12 x 30)/365]/100 = 123.28 INR
• The interest on 3000 INR @2.5% p.m. from 18th August to 19th August (that is for 2 days): [(3000 x 2.5 x 12 x 2)/365]/100 = 4.93 INR
• The interest on 1000 INR (fresh spending @2.5% p.m. from the time of 17th August to 19th August (that is for 3 days): [(1000 x 2.5 x 12 x 3)/365]/100 = 2.46 INR

Total interest = 345.20 + 32.05 + 123.28 + 4.93 + 2.46 = 507.92 INR

A user of a credit card has to pay the interest rate that is charged on the average balance of a person's credit card. It implies that a bank calculates the outstanding amount of an individual's card daily. After that, this amount is divided by a month's number of days, and depending on this, the interest rate on a credit card is charged.

Example 2:

If you swipe 1000 INR on the first day of your credit card's billing month, 1000 INR would be the outstanding amount and interest would be calculated based on the average balance. However, if you swipe 1000 INR at the end of a monthly billing cycle, especially on the billing cycle's last date, the interest on your credit card would be lower. Therefore, you should think clearly during the time of swiping your card so that you do not have to pay more money than your credit card interest rate. Just keep in mind that the interest rate of your credit card is done before the billing period of your card takes place.

You can know the following situations where you have to pay the interest rates charged on the credit card payments:

1. When you would pay the minimum amount within a period.
2. When you have to pay an amount lower than the total due amount.
3. When a customer made no payment at all.
4. When you do not pay the full outstanding amount.
5. When a customer takes advance cash from an ATM using a credit card.

The credit cards issued by the banks are offered at least 50 days of the interest-free period to all the users. It does not imply that in every transaction you would enjoy the same interest-free period. The interest-free period is dependent on the day on which you made the transaction. For instance, suppose the statement date of your credit card is the 25th of each month and the bill is due on the 14th of the next month. Thus, if you do any transaction on the 14th of the earlier month, on this transaction you will enjoy the complete 50-day period of interest-free. However, if you made any purchase on the 14th of the present month, that is 14 days before the date of the statement, your transaction would receive the 14-day interest-free period. Moreover, the purchase that you make on the 23rd would offer you just 1 day of your interest-free period.

The credit card billing cycle takes place every month after the day the statement on your credit card has been generated. You can go through the statement period by logging in to the website of the bank or financial company from where you have applied for a credit card. You can utilize the interest-free period for doing activities incorporating making purchases in a planned way and taking advantage of multiple credit cards if you have one.

Just know the following conditions in which the interest-free period of a credit card is not applicable:

• 1) Withdrawal of cash.
• 2) Each transaction if you carry forward your balances in the next cycle.

There are 6 steps that you can follow to avoid paying an interest rate on your credit card and the steps are given below:

• Pay the outstanding amount on your credit card before the due date: issuers, such as MasterCard or Visa, issue the credit cards. On every credit card, you have to pay monthly only 5% of the outstanding amount of the credit card. This balance can be carried forward in the next month. However, you should avoid doing it as it can create the issue of debt in your life. If you are not able to pay 5% before the due date, you ought to pay a late payment fee. The late payment fee is charged by credit card users along with taxes and interest charges. You must make the full payment on the provided due date just to make the interest cost nil.
• Do balance transfer: If you have low funds in your account, you cannot pay the bill completely. Due to this reason, the revolving credit for the next month can incur more interest in charge of at least 3% to 4% per month. You can avoid paying more interest rates on your credit card by choosing the balance transfer (BT) option. You can do a balance transfer if you only have more than one card. The card limit is blocked when you use BT. By using this facility, you can transfer the outstanding amount of a credit card to another credit card at a lower interest rate from the range of 1% to 1.77% monthly.
• The processing charges would be present and mainly it is 1% of the amount of the balance transfer. Sometimes, the card issuers provide zero interest on balance transfers. However, zero-interest offers are not permanent and it lasts between 3 - 12 months. You should keep in mind that doing a balance transfers frequently from your credit card or the presence of a higher outstanding balance on the card can negatively affect your Credit Score.
• Converting to EMI: You can get the EMI facility on your credit card to purchase expensive items. If you are facing issues paying the high-price amount of a product, you can convert it into EMIs as EMIs have a low interest rate. After converting a large amount of a product into EMI, the interest rate can become 14% to 25% lower. There are two kinds of EMI conversion options. The first option is the merchant EMIs, which a merchant provides when you purchase a product by utilizing a credit card. Secondly, the issuer of your credit card may provide you the option of EMI on some expensive purchases, which you made by utilizing the credit card. These EMI options are called EMIs on call.
• Do not utilize credit cards abroad: If you are using your credit card abroad for doing foreign currency transactions, it is okay. However, it can be expensive. If a cardholder utilizes a credit card in a foreign country, he or she has to pay the conversion charges. When an individual utilizes the card in an ATM, he has to pay an additional fee. The conversion charges are ranging from 3% to 5%. You can prevent paying an interest rate on your credit card if you apply for a Forex card when you are traveling in a foreign country as a Forex card offers better pricing and lowers the overall cost.
• You should deposit every cash withdrawal as fast as you can: You ought to use your credit card if you are thinking of withdrawing cash from an ATM. However, you should deposit the cash back quickly because these withdrawals done from the ATMs do not have any period of interest-free. You would have to make the payment of a one-time fee along with interest charges, which begin from day one unless you do repayment of the amount. You must keep track that how many times you have used a credit card to withdraw money so that you can understand how much cash you have to deposit back.
• There is no interest-free period on your new purchases: f the outstanding amount of your credit card is not paid and it is carried forward to the next month's billing cycle, this remaining amount will accumulate monthly interest. The monthly interest would be accumulated at the rate of 3% to 4%. If you continue to roll over the outstanding amount and spend money on purchasing new items per month, the interest rate can reach a higher level. The higher level of interest rates on your credit card would end up in debt and you have to face financial problems to get rid of this debt.
• An interest-free period is present on purchases that are done by using a credit card and this period can last for at least 45-plus days. You can get this beneficial facility of the interest-free period on the credit card if the outstanding amount is nil. If you roll the outstanding amount of your credit card of some months to the billing cycle of next month, you would not get the period of interest-free on all your new purchases. You have to be responsible enough to clear the outstanding amount of the card per month so that you do not have to waste your money in clearing debts and paying a high interest rate.