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How to Calculate Credit Card Interest Rates
Posted on Friday, December 16th, 2022 | By IndusInd Bank
Neha just got a new credit card for the first time. Being a novice, she didn’t fully understand what the interest rate is, how it is calculated on her transactions, and how she can avail of the interest-free period on her new credit card. Luckily for Neha, her close friend worked at a bank and knew exactly how to explain the workings of interest rates on the credit card.
Just like Neha, many credit card users do not know how interest rates work. To some, it may seem intimidating and complicated to deal with, but it’s on the contrary. Apply for a credit card online, read on to know everything about the interest rate on credit cards.
The interest rate on credit cards, sometimes also known as finance charges, is the rate charged by the issuing bank on the amount you borrow using your credit card.
How is the interest rate on credit cards calculated?
The interest rate on credit cards in India is calculated as per the annual percentage rate or the APR. This is the interest rate which is calculated for the entire year instead of the monthly rate. Nonetheless, while assessing the interest amount month by month on the transactions made, the monthly percentage rate is applied. The interest rate on the credit cards vary from bank to bank and on the type of credit card you own.
Transaction types and interest rates
There are a few cases when the banks charge interest rates, and these are –
- Grace period does not apply when you don’t pay your outstanding dues in full by the due date
- When you only pay the minimum amount due in a month
- When the payment is less than the minimum amount due
- When you withdraw cash using your credit card
- When you carry forward the previous month’s bill to the next month but pay the full amount before the due date, no interest rate is applied.
If you are a newbie like Neha, you might not have a credit score and you will need to build it gradually. But if you do, it plays an important role in determining your interest rate for credit cards. But there can be other factors deciding the interest rate and these are –
Previous payment history
If your previous payment history is erratic, your interest rate might be high. This reflects your ability to pay your dues on time and your overall creditworthiness. But if you have been consistent and disciplined with your payments in the past, you will have a good credit score, and can even negotiate with the bank on the interest rate.
Debt
Banks check the total amount you owe in credit card payments before deciding the interest rate. A low credit score might not work in your favor and vice versa.
If you are worried and need to know how much you will pay in interest on your credit cards, then you can use the credit card interest rate calculator to understand the outgo towards interest payment. When you enter the relevant information, the calculator will automatically show you the interest applicable to your due amount.
Planning to apply for a credit card? Get an instant credit card with IndusInd Bank in 3 easy steps. Designed for the convenience of our users, we offer a 100% paperless application and online credit card approval process. To get your credit card, head on to our website now.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
