Understanding Credit Card Interest Rates Online & How it Works

Posted on Thursday, January 23rd, 2025 | By IndusInd Bank

If you are looking for a mode of payment that is convenient as well as rewarding, then a credit card (CC) is the right option. A credit card allows you to enjoy rewards on expenses and provides flexibility in spending. However, while credit cards are beneficial in many ways, you must apply for one only after thorough research. During your research, the most important aspect you will come across is – credit card interest rates. 

As a potential borrower, you must learn about the interest rates on credit cards, how they work, and other related aspects to make an informed decision. 

What is a Credit Card Interest Rate?

• A credit card interest rate is the percentage a bank or issuer charges a cardholder on any outstanding balance that the holder carries beyond the payment due date. 

• This rate is represented via the Annual Percentage Rate (APR). In simple terms, it determines the cost of borrowing money on your credit card.

• If you carry a balance from month to month instead of paying off the entire dues, the bank applies this interest rate to the unpaid balance. This means you pay extra charges the longer the balance remains unpaid.

• The credit interest rate varies across cards. For instance, a RuPay Credit Card will have a different interest rate than a Platinum Credit Card. The interest rate is also influenced by factors like credit score, income, and overall financial profile.

How Does Credit Card Interest Rate Work?

Credit card interest is calculated based on the outstanding balance you carry forward after your payment due date. 

Each credit card calculates interest based on different intervals—daily, monthly, or annually. When you carry a balance, the issuer applies the interest to this unpaid amount, which increases your overall debt.

Example:

Suppose your credit card has an APR of 18%, and you carry a balance of ₹10,000 for a month without making any payments. 

To calculate the daily interest, the APR is divided by 365 days. This results in a daily interest rate of 0.0493%. 

If you multiply this (0.0493% or 0.000493) by the outstanding amount (let’s say ₹10,000) and the number of days in the billing cycle (let’s say 30 days), the interest accumulated would be around ₹147.90. 

Unless you pay down the balance, your debt will continue to grow each day due to compounding interest.

When Does the Bank Charge Interest on Your Credit Card Balance?

Here are common scenarios where the bank will charge credit card interest:

1. Carrying a Balance

If you do not make the credit card bill payment in full by the due date, the bank will apply interest to the remaining balance.

2. Cash Advances

If you withdraw cash using your credit card, the bank often charges interest from the date of the withdrawal. Banks do not provide grace periods for cash advances. The credit interest rate for cash advances is often higher than the standard interest rate.

3. Partial Payments

When you pay the outstanding amount in part, there is no grace period. This means the interest starts accruing on the remaining balance.

Can You Lower Your Credit Card Interest Rate?

While credit card interest rates are set by the issuer, some options may help reduce the overall interest paid.

1. Negotiate with Your Issuer

If you have a good payment history, reach out to your issuer to discuss a rate reduction. Banks may sometimes adjust rates for long-term and reliable customers.

2. Pay the Full Balance on Time

Paying off the entire balance every month means you do not have to incur any interest at all. This is especially helpful if your card has high CC interest rates.

3. Pay During the Grace Period

Avoid carrying a balance beyond the grace period to prevent any interest charges from applying to your purchases.

Reducing interest rates may not always be easy, but by using the above strategies, you can minimise overall interest.

Also Read: What is Unbilled Amount in Credit Card?

Conclusion

Working through credit card interest rates can feel a bit challenging, but understanding how they work can allow you to make better financial choices. Rather than seeing interest as an unavoidable cost, look at it as an incentive to explore flexible ways to manage your balance. This way, you can maximise the benefits of your credit card without bearing high interest charges.

If you are looking to get more out of your credit card, IndusInd Bank offers a range of options, from everyday cards to Credit Cards with lounge access.

Explore the benefits and find a card that matches your lifestyle and spending needs to make every transaction count!

Apply Now

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your 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 making any financial decisions based on the contents and information.