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Introduction
Credit card interest rates are alternatively referred to as finance charges. Every credit card comes with a prefixed finance charge and it will be the same for all the customers. These could vary from one card issuer to another and also across different credit cards from the same issuer. Before getting a credit card, you must be aware of the interest rate charged on it. Unlike other loans, credit card interest rates are usually not linked to the user’s credit score and repayment capacity.
It is important to note that interest is charged on credit cards only if the outstanding amount is not paid in full or one has withdrawn cash from ATMs using the credit card. No interest is charged when you clear your credit card dues on time.
Interest Rate Calculation for Credit Cards
Interest gets charged on a credit card daily, provided, the outstanding balance stays in your account. To help you understand how your card issuer charges interest on your credit card, here is an example:
Let’s assume that you have Rs. 2,000 outstanding balance, the credit card statement date is 18th of every month and the interest rate is 2.5% per month.
| Date | Transaction | Amount |
| 10th July | Luxury Goods Purchase | 15,000 |
| 15th July | Apparel Purchase | 5,000 |
| 15th August | Payment to Credit Card | 2,000 |
| 16th August | Groceries Purchase | 1,000 |
| 17th August | Payment to Credit Card | 15,000 |
Since Rs. 2,000 still remains unpaid in this account, the entire outstanding balance will attract an interest charge.
Interest on Rs. 15,000 @ 2.5 per cent p.m. from 18 July to 15 August (i.e. for 28 days)
[(15000 x 2.5 x 12 x 28)/365]/100 = Rs. 345.20
Interest on Rs. 13,000 @ 2.5 per cent p.m. from 15 August to 17 August (i.e. for 3 days)
[(13000 x 2.5 x 12 x 3)/365]/100= Rs. 32.05
Interest on Rs. 5,000 @ 2.5 per cent p.m. from 18 July to 17 August (i.e. for 30 days)
[(5000 x 2.5 x 12 x 30)/365]/100 = Rs. 123.28
Interest on Rs. 3,000 @ 2.5 per cent p.m. from 17 August to 18 August (i.e. for 2 days)
[(3000 x 2.5 x 12 x 2)/365]/100 = Rs. 4.93
Interest on Rs. 1,000 (fresh spends @ 2.5 per cent pm from 16 August to 18 August (i.e. for 3 days)
[(1000 x 2.5 x 12 x 3)/365]/100 = Rs. 2.46
Total Interest = 345.20 + 32.05 + 123.28 + 4.93 + 2.46= Rs. 507.92
Credit Card Interest Rates Charged by Various Banks
Here is the list of the interest rates charged by various banks.
|
Bank Name |
Credit Card Interest Rate | |
| Monthly Percentage Rate (MPR)% | Annual Percentage Rate (APR)% | |
| HDFC Bank | 1.99% to 3.49% | 23.88% to 41.88% |
| ICICI Bank | 1.25% to 3.50% | 15% to 42% |
| SBI Bank | Up to 3.35% | Up to 40.2% |
| Axis Bank | 2.50% to 3.25% | 34.49% to 46.78% |
| HSBC Bank | 2.49% to 3.50% | 29.88% to 42% |
| Amex Bank | 1.99% to 3.50% | 23.88% to 42% |
| Citibank | 3.10% to 3.50% | 37.20% to 42% |
| IndusInd Bank | Up to 3.83% | Up to 46% |
| Kotak Mahindra Bank | Up to 3.5% | Up to 42% |
| RBL Bank | Up to 3.5% | Up to 42% |
| Yes Bank | 1.20% to 1.99% | 14.40% to 23.88% |
Credit Card Interest-free Period
Credit card interest-free period, also known as a grace period, is the time between the credit card transaction date and the credit card payment due date. It varies for every transaction made on your credit card. Usually, the interest-free period ranges from 20 to 50 days. If you make the payment within the interest-free period, i.e., on or before the due date, you don’t have to pay any interest. This means you can enjoy the credit facility at zero interest.
To understand how the credit card grace period is calculated, we can use an example. For instance, a particular credit card has an interest free period of up to 50 days. The billing date on the credit card, for instance, is the 5th of every month. This means the cardholder can spend on this credit card from 6th May to 5th June and he will be billed on the 5th of June. His payment due date, considering the 50-day interest-free period, will be 24th June.
If you take the range of 6th May to 24th June, you will get 50 days, which is the interest-free period. Therefore, only the transactions done on the first day of the billing cycle, which is 6th May, will have an interest-free period of 50 days. And for all the subsequent transactions, the grace period will get reduced based on the transaction date. This means a transaction done on the 1st of June will have a grace period of only 24 days. Thus, the minimum grace period, in this case, is 20 days applicable for a transaction done on 5th June. Thus, grace period or interest-free period varies from one transaction to another.
End Note
Most people wish to keep their credit card cost at zero. Getting a credit card with zero annual fees is a good start, but if you carry a balance, you could continue to incur a cost in the form of interest. Knowing how and when credit card interest is charged is the best way to avoid paying interest and keep your credit card interest-free.