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Credit Card Interest Rates

Credit cards levy certain charges and fees. Finance charges are the leading among them. These charges are commonly known as credit card interest rates. Interest is charged by credit card issuers on the amount that has been borrowed. Interest charges are applicable only to those cardholders who don’t pay their outstanding balance in full.

Credit card interest rates vary across lenders due to the differences in lenders’ policies. Further, credit card interest rates also vary among the different cards issued by the same lender. However, unlike other lines of credit, the credit card interest rate is not affected by the CIBIL™ score. These predetermined standard rates apply to all cardholders regardless of their credit histories.

Credit Card Interest Rates Charged By Top Banks

Bank Name

Monthly Interest Rate

Annual Interest Rate

State Bank of India

Upto 3.50%

Upto 42%

DBS Bank

3.75% to 4%

45% for customers with an existing credit card history

48% for customers without an existing credit card history

RBL Bank

3.99%

47.88%

Axis Bank

1.50% to 3.60%

19.56% to 52.86%

ICICI Bank

3.50% on InterMiles ICICI Bank Credit Card, Make My Trip ICICI Bank Credit Card, and ICICI Bank HPCL Super Saver credit card

3.67% on Emirates Skywards ICICI Bank Sapphiro Credit Card/Manchester United credit cards/Emirates Skywards ICICI Bank Emeralde Credit Card/Emirates Skywards ICICI Bank Rubyx Credit Card

2.49% on ICICI Bank Instant Platinum Credit Card/ICICI Bank Instant Gold Credit Card/Fixed deposit instant credit card

3.40% on other credit cards

42% on MakeMyTrip ICICI Bank credit card/InterMiles ICICI Bank credit card/ICICI Bank, and HPCL Super Saver credit card

44% on Manchester United credit cards/Emirates Skywards ICICI Bank Emeralde credit card/Emirates Skywards ICICI Bank Sapphiro credit card, and Emirates Skywards ICICI Bank Rubyx credit card

29.88% on ICICI Bank Instant Platinum credit card, ICICI Bank Instant Gold credit card, and fixed deposit instant credit card

40.80% on other credit cards

Cards Offering Lowest Interest Rates In India

Credit Cards

Interest Rate

HDFC Diners Club Black Credit Card

1.99% per month (23.88% per year)

Bank of Baroda Signature Visa Credit Card

2.60% per month (31.2% per year)

ICICI Bank Instant Platinum Credit Card

2.49% per month (29.88% per year)

HDFC Infinia Credit Card - Metal Edition

1.99% per month (23.88% per year)

Kotak Mahindra Best Price - Premium Card

1.50% per month (18% per year)

When Is Interest Charged on Credit Cards?

If you pay the total amount due on your credit card before the due date, the interest charges will not be applied. Let us see the cases when the finance charges are applicable to credit card transactions.

  • When you skip credit card payment for a month: When you do not make any credit card payment in a month, the bank will start charging interest on the total amount outstanding and also on all new transactions starting from the date of transaction till the time all the previous dues are paid completely.
  • When you pay only the minimum amount due: If you pay only the minimum amount due on your credit card, interest will be charged on the outstanding amount and on all the new transactions till the previous balance is paid completely.
  • When you pay less than the minimum amount due: If you pay an amount that is less than the minimum amount due, then the entire outstanding amount will attract finance charges along with all the new transactions until the current outstanding amount is paid completely.
  • When you withdraw cash: Money withdrawn using a credit card is called a cash advance facility. The withdrawn amount will garner finance charges from the date the amount is withdrawn till the amount is paid back completely.
  • When you carry forward the outstanding balance: If you have not cleared the outstanding bill of the previous month completely, then the remaining amount will be carried forward to the next billing cycle. In that case, interest will be charged depending on the repayment amount which can either be the minimum amount due or lower than the minimum amount due. It will also be charged on all the new transactions till the existing dues are paid completely.

How To Compute The Credit Card Interest Rate?

Interest is charged daily on the balance due in your account. Credit card interest is computed using the formula given below:

Credit Card Interest = [(Total Number of Days from the Transaction Date * Outstanding Amount * Credit Card Interest Rate Monthly x 12 Months)] ÷ 365 Days

Let us consider an example to understand how credit card interest rates are calculated

Transaction Date: July 1, 2023

Transaction Amount: Rs. 20,000

Statement Date: July 6, 2023

Minimum Amount Due: (Usually 5 percent of retail purchases + other fee charges): (5 percent of 20,000) = Rs. 1000

Total Amount Due: Rs. 20,000

Amount Due Date: July 26, 2023

Assumed a monthly interest rate of 3.5 percent on unsettled credit card bill

Actual Bill Payment:

Case 1: Pay full bill amount prior to the due

  • Bill amount fully paid on: July 21

Total Payment Made: Rs. 20,000

Calculation:

Interest levied for 21 days (Between July 1 and July 21) = [21 * 20,000 * 3.5% *

12/365] = 482.16

Total interest charged = 0

In this case, there is no interest charged, since the complete payment has been made before the due date.

Case 2: Payment Done Partially before the due date

Total payment made: Rs. 5000

Payment Date: July 21

Next Statement Date: August 6th

Transaction done between July 6th to August 6th: Nil

Calculation:

Interest levied for 21 days (Between July 1 and July 21): 482.16

Interest levied for 15 days (Between July 22 and August 6, on a balance of 15,000 [20,000 (Bill amount) - 5,000 (Payment made)]) = (15*15,000*3.5%*12/365) = 258.90411

Total Interest Charged = (258.90411 + 482.16) = 741.06411

Interest will be charged for the full amount of Rs. 20,000 till the first payment. Interest on balance amount (Rs. 15,000) will be levied for the next 15 days till the new statement is generated

Case 3: Partial Payment After the Due Date

Total Payment Made: Rs. 5,000

Payment Date: July 28th

Next Statement Date: August 6th

Transaction Between July 6th to August 6th: Nil

Calculation:

Interest levied for 28 days (Between July 1 and July 28) = (28 * 20,000*3.5%*12/365) = 644.38

Interest levied for 9 days (Between July 28th and August 6th on a balance of 15000) [20,000 (bill payment) - 5000 (Payment made)] = [9 * 15,000 * 3.5%* 12/365)] = 155.342

Interest will be charged for the complete amount of Rs. 20,000 till the first payment. Interest on the balance amount (Rs. 15,000) will be levied for the next 9 days until the new statement is generated. Moreover, late payment charges will also be levied as the minimum due amount was not paid on or before the amount due date.

Case 4: Partial payment post the due date and subsequent transactions done

Total Payment Made: Rs. 5,000

Payment Date: July 28

Next Statement Date: 6 August

Transaction made between 6 July to 6 August: 1

New Transaction amount: Rs. 1000

New Transaction Date: July 15

Calculation

Interest levied for 15 days (Between July 1 and July 15) = [15 * 20,000 * 3.5% * 12/365 = 345.20

The interest levied for 13 days (Between July 16th and July 28th) on a balance of 21,000 [20,000 (Outstanding bill amount from previous statement) + 1000 (New transaction) = [13 * 21000 * 3.5% * 12/365 = 314.13]

Interest charged for 9 days (Between July 28 and August 6 on a balance of 16,000 [21,000 (outstanding) - 5000 (Payment made)] = [9 * 16000 * 3.5% *12/365 = 314.13

Interest will be charged for the complete amount of Rs. 20,000 till the date of the first transaction. Then the interest will be charged on the total outstanding = (Value of consequent transaction + ‘Total Amount Due’ of the last statement) till you make the first payment. Interest on balance amount (Rs. 16,000) will be levied for the remaining number of days until the next statement is generated. Additionally, applicable late payment charges will also be levied.

What Is Credit Card Interest Free Period?

The credit card interest free period is the time taken between the bill cycle’s end to the payment due date. Usually, the credit card interest free period is up to 50 days. But, all transactions will not enjoy the same interest-free period.

Let us consider an example:

If the statement was generated on the 25th of March, then the statement period is from 25th March to 24th April, and the due date for the payment is 10th May. The last day of interest-free payment for purchases made between 25th March to 24th April is 10th of May. Thus, if a purchase was made on 25th March, then the interest free period is 47 days, but if the purchase was made on 24th April, then the interest free period is only for 17 days.

Conclusion

Credit cards offer multiple benefits in many ways. However, there are a few things which you should know while choosing the right credit card. Credit card interest rate is one such important factor.

FAQs Of Credit Card Interest Rates

1. What is the interest rate in credit cards?

Credit card interest rates are also known as finance charges, and they are the price you pay for borrowing money. They vary from one card issuer to another and may also differ across different credit cards from the same issuer.

2. What is the interest rate charged on a credit card usually?

The credit card’s annual interest rate is based on the card type and the issuing authority. Various banks have different credit card interest rates. You can compare credit card interest rates and choose the one that works for you.

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