Credit Card Interest Rates

The interest rate on credit card is charged in the following situations:

• When you pay only the minimum amount due
• When you pay an amount lower than the total amount due
• When you make no payment at all
• When you have withdrawn cash from an ATM using your credit card

Remember, when you carry forward outstanding balances to the next billing cycle, the new purchases you make are not eligible for the interest-free period. This means that you will have to pay interest on new purchases from the first day onwards.

Interest is charged on credit card on a daily basis as long as the outstanding balance stays in your account. This can make the calculation a bit complicated. To help you understand how your card issuer charges interest on your credit card, here is an illustration. Let us presume the following:

The interest rate will be calculated in the following scenarios as follows:

(i) If the user paid the full amount due on his/her credit card by March 26, 2024– No interest charges applicable

(ii) If the user made a partial payment before the due date, i.e, March 26, 2024

Let’s suppose the card user made a partial payment of Rs. 5,000 on 21st March and no transactions happened before the next statement date, i.e, April 6th.

Here, interest is applicable on Rs. 10,000 for 21 days, from 1st March to 21st March, and on the remaining Rs. 5,000 balance for 15 days, ie. from 22nd March to 6th April.

The interest calculation is as follows:

(iii) If the user made a partial payment after the due date, i.e, March 26, 2024

Here, let’s suppose the user paid Rs. 5,000 on 28th March and made no further transactions with the credit card until the next statement date which is April 6. In this case, the interest is applicable on the initial sum for 28 days that is from 1st March to 28th March and also on the balance for 9 days i.e.,from 28th March to 6th April. The interest calculation is as follows:

(iv) If the user made a partial payment after the due date and used the card for fresh transactions

Now, let’s suppose the user made fresh transactions with the credit card of Rs. 2,000 on 15th March and made a partial payment of Rs. 5,000 on 28th March, then the interest rate calculation will be as follows:

Credit card interest-free period is the timeframe between the bill cycle’s end to the payment due date. Issuers usually offer up to 50 days of interest-free period to the user. However, this does not mean that all transactions will enjoy the same interest-free period. It depends on the day you make such a transaction. Let’s understand this with the help of an example:

Say the statement date for your credit card is the 20th of every month and the bill is due on the 10th of next month. So, if you make a transaction on the 10th of the previous month, then this transaction will enjoy the full 50-day interest-free period. However, if you make a purchase on the 10th of the current month, that is, 10 days before the statement date, this transaction will only get the 10-days worth of interest-free period. Similarly, a purchase made on the 19th will only get 1 day of the interest-free period.

The interest-free period is not applicable in case of cash withdrawals and on every next transaction when you carry forward your balances to the next cycle.

Some credit cards charge a comparatively lower rate, than the usual rate of up to 3.75% per month. Most of these cards are premium category cards that are usually invite only or come with high annual charges.