What is Credit Card Interest?

Credit card interest is also known as finance charges. Credit card issuers or banks charge this fee for borrowing money. This interest is calculated on a yearly basis and is expressed as an APR (Annual Percentage Rate).

When you understand credit card interest charges, you can better manage your debt and save money by avoiding unnecessary fees.

Interest Rates of Top Credit Card Issuers

The interest rate you will have to pay will vary based on the following factors -

• Bank or credit card issuer

• Type of card

• Your creditworthiness

• Bank or credit card issuer’s policies

Let’s look at the current range of interest rates charged by some of the top credit card issuers in India -

Note: The rates are mentioned as of 26 December 2024 and can change at the bank’s discretion. Please get in touch with the specific credit card issuer before applying for one.

How Does Credit Card Interest Work and How to Calculate It?

Credit card interest is calculated according to the Annual Percentage Rate (APR), but it shows up as the Monthly Periodic Rate (MPR) on your bill. Let’s dig deeper to know how it works -

• Daily Interest Calculation: The daily periodic rate (DPR) is used to calculate interest. The DPR is the APR divided by 365,i.e., DPR = APR/365.

• Interest Charged: Interest is only charged on the amount you owe. If you pay off your balance every month, no interest is accrued.

For example, if you owe Rs.10,000 and your APR is 47%, the daily interest would be calculated as per the following formula - 0.13%

Daily Interest Rate = 47%/365 = 0.13%

Daily Interest Amount = Rs.10,000 × 0.13% = Rs.13 per day

• Monthly Interest: To know what your monthly interest rate is, just multiply the daily interest by the number of days in the billing cycle (usually 30 days).

Transactions on Credit Cards that Attract Interest

If you want to use a credit card and not incur interest charges, you must know which factors lead to interest charges. Here are the key transactions for which interest rate is charged -

• Unpaid balances from your purchases at the end of the billing cycle

• Interest is charged on cash advances from the day of withdrawal

• Converting purchases into EMIs

• Transferring debt from one card to another, if not paid off within the introductory period

• Failing to pay the minimum due amount within the due date

• Interest is charged on overdue fees like late payment charges, over-limit fees, or missed EMI payments

How to Reduce Credit Card Interest Rates?

Here are some tips to reduce the interest rates charged by your credit card issuer -

• Always try to pay your entire credit card bill by the due date

• If you cannot pay the full amount, consider paying at least the minimum amount due within the due date

• Avoid cash withdrawals from your credit cards

• If you can’t pay your monthly bill in full, convert big purchases into easy EMIs to reduce interest over time

• Take advantage of 0% APR rates offered for an introductory period

• Try to keep your credit utilization low

• Pay attention to your billing cycle and avoid spending too close to the due date to have more time to pay off balances

• Use reminders to ensure timely payments and avoid missing due dates

• Build a high credit score to get credit cards with lower interest rates

Conclusion