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.
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:
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.
You can know the following situations where you have to pay the interest rates charged on the credit card payments:
The credit card interest rates that are present in the top banks of India are given as follows:
|Credit cards||Interest Rate per month||Annual percentage rate (APR)|
|SBI Card PRIME||3.35%||40.2%|
|HSBC Visa Platinum Credit Card||3.3%||39.6%|
|HDFC Bank Regalia Credit Card||3.49%||41.88%|
|ICICI Bank Platinum Chip Credit Card||3.40%||40.8%|
|HDFC Regalia First Credit Card||3.49%||40.8%|
|SBI Card Elite||3.35%||40.2%|
|Standard Chartered Manhattan Platinum Credit Card||3.49%||41.88%|
|Citibank Rewards Credit Card||3.25%||39%|
|Axis Bank FreeCharge Credit Card||3.40%||40.8%|
|Urbane Gold Credit Card of Kotak Mahindra Bank||3.5%||42%|
|Yes Prosperity Rewards Plus Credit Card of Yes Bank||3.5%||42%|
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:
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.
|11th July||Purchase of jewelry||15,000|
|16th July||Purchase of apparel||5,000|
|16th August||Payment to be paid on the credit card||2,000|
|17th August||Purchasing the groceries||1,000|
|18th August||The payment to your credit card||15,000|
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.
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.
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.
There are 6 steps that you can follow to avoid paying an interest rate on your credit card and the steps are given below:
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.
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.
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.
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.
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.
Yes. The interest would be charged on your credit card's remaining balance even if you pay your card's minimum amount due.
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.
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.
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.
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.
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.
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.
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.