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Credit Card Interest Rates

Credit card interest rates or finance charges are charged on the amount you have spent on your credit card. The interest rates or finance charges might also vary from one card issuer to another & from one card to another. These are usually charged in case you pay the minimum amount due, a lower amount than due, no payment, or cash withdrawal.

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About credit cards

Credit cards are one of the best alternatives to cash 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 do 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. The 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. The specialized credit cards incorporate those credit cards which offer fuel cost savings, travel privileges, dining benefits and so on.
  3. Reward points cards: The reward points cards provide reward pints 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 it on a daily basis

What are credit card interest rates?

The credit card interest rates are called by the other name of finance charges; the interest rates differ in 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 do purchases. If you do not pay the interest rate that is charged on 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.

When are interest rates charged on credit card payments?

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 time 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 would not pay the full outstanding amount.
  5. When a customer takes advance cash from an ATM using a credit card.

Credit card interest rates from top banks

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

Credit cardsInterest Rate per monthAnnual percentage rate (APR)
SBI Card PRIME3.35%40.2%
HSBC Visa Platinum Credit Card3.3%39.6%
HDFC Bank Regalia Credit Card3.49%41.88%
ICICI Bank Platinum Chip Credit Card3.40%40.8%
HDFC Regalia First Credit Card3.49%40.8%
SBI Card Elite3.35%40.2%
Standard Chartered Manhattan Platinum Credit Card3.49%41.88%
Citibank Rewards Credit Card3.25%39%
Axis Bank FreeCharge Credit Card3.40%40.8%
Urbane Gold Credit Card of Kotak Mahindra Bank3.5%42%
Yes Prosperity Rewards Plus Credit Card of Yes Bank3.5%42%

How do banks calculate the credit card interest rate?

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 19th of each month and 2.5% is the interest rate per month.

DateTransactionAmount
11th JulyPurchase of jewelry15,000
16th JulyPurchase of apparel5,000
16th AugustPayment to be paid on the credit card2,000
17th AugustPurchasing the groceries1,000
18th AugustThe payment to your credit card15,000

Just as 2000 INR is the outstanding amount in this account, the outstanding balance would incur 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 the 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 average balance. However, if you would swipe 1000 INR at the end of a monthly billing cycle and 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 as 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.

What is the credit card interest-free period?

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 25th of each month and the bill is due on the 14th of next month. Thus, if you do any transaction on the 14th of the earlier month, on this transaction you would enjoy the complete 50-day period of interest-free. However, if you made any purchase on 14th of the present months, that is 14 days prior to the date of the statement, your transaction would receive the14-days interest-free period. Moreover, the purchase that you do on the 23rd would offer you just 1 day of your interest-free period.

The billing cycle of your credit card takes place every month after the day the statement on your credit card has been generated. You can go through the statement period by log 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.

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.

How to avoid paying an interest rate on credit card?

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% prior the due date, you ought to pay a late payment fee. The late payment fee is charged from the credit card users along with taxes and interest charges. You must do 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 rate on your credit card by choosing balance transfer (BT) option. You can do balance transfer if you only have more than one card. The card limit is blocked when you would use BT. By using this facility, you can transfer the outstanding amount of credit card to another credit card in 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 balance transfer. Sometimes, the card issuers provide zero-interest on balance transfer. However, zero-interest offers are not permanent and it lasts between 3 - 12 months. You should keep in mind that doing balance transfer frequently from your credit card or the presence of 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 the expensive items. If you are facing issues to pay the high-price amount of a product, you can convert it into EMIs as EMIs have a low-interest rate. After converting the big 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 would 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 would utilize the card in an ATM, he has to pay the 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 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 do the payment of one-time fee along with interest charges, which begin from the day one unless you do repayment of the amount. You must keep a 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 carry forwarded to the next month's billing cycle, this remaining amount would 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.

FAQs

Is there any set interest rate on a user's credit card?

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Generally, the interest rates on the credit card come within a range between 2.5% to 3.5% every month. The variation in the interest rates can take place from the distinct issuers of credit cards.


 

When I must pay the bill of my credit card to avoid paying any interest?

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You should pay the bill of your credit card in full amount or you should pay the amount before the due date over. In this way, you can avoid paying any interest on the credit card bill.

Does the interest-free period is available when any user would carry forward his or her outstanding amount?

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The period of credit-fee is not present for those users, who have not paid their credit card bill before the due date. The unpaid outstanding amount of the user can continue to accumulate interest charges.

The interest on my credit card will be charged even if I would pay the minimum amount due on the card?

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Yes. The interest would be charged on your credit card's remaining balance even if you pay your card's minimum amount due.

What must I do if I lose my credit card or if it is stolen?

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If your credit card is lost or stolen by somebody, you should block your credit card to prevent any chances of unauthorized transactions. You ought to call the customer care number of the issuer of the credit card. Just inform them about the theft issue of your credit card so that it can be blocked quickly and the procedure of a replacement card can start quickly.

How much credit limit of my card can I utilize for doing Cash Advance transactions?

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You would be able to receive cash advances on your credit card from 30% to 40% of the total credit limit. Even if it is an industry norm, you may get authorization for either a higher or lower limit on cash advance. You can know about this matter better in the agreement of your credit card.

What is the cash advance?

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A credit card user can utilize her credit card for withdrawing cash in the ATMs of India and overseas. This service is known as a cash advance. The cash advance transactions do not feature any interest-free period on purchases and therefore, finance charges are only applicable from the date when you withdraw money. You would not get any reward points on the cash advances.

What is the markup for foreign currency transaction?

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When you would utilize your card abroad, your credit card provider would charge you the transaction fee of approximately 3.5%. In addition, 3.5% would be charged on the transaction amount you make while withdrawing money or on your purchases. However, variations are present in the markup value of distinct cards that are issued by the issuer.

What is revolving credit?

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Revolving credit is a kind of credit, which do not have any fixed payments as compared to an installment credit (EMI). The instance of revolving credit is a credit card. Any individual can make several payments if it is needed to pay the due balance. If a person pays the due of credit card partially, the amount of balance would be carry forwarded to the next month's billing cycle.

Why an annual fee is charged on a credit card?

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A credit card company charges an annual fee per year for using a credit card. This annual fee differs from card to card and the annual fee can be waived by a bank if the agreement of your credit card has a waiver clause on meeting a certain amount of annual expense.

What is a finance charge and in what way it is computed?

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A finance charge is an interest that is billed to the account if any credit card user pays an amount lower than the balance statement on the given due date. This finance charge is applied to the unpaid remaining amount only a cardholder has made in the initial payment and not on the credit card's original outstanding amount. The calculation of finance charge is done daily and it would be added to the card account or credit card unless the payment is done.