27 May, 2025 | 13:01 IST
Credit cards are financial instruments that allow you to borrow money from a bank to make purchases, with the option to repay later. If the full amount isn't cleared by the due date, interest is usually charged on the outstanding balance. They play a key role in building credit history, earning rewards, and managing urgent expenses. From rent payments and utility bills to mobile recharges and shopping, a wide range of expenses can be covered using a credit card.
Despite their convenience, credit cards come with caveats – minimum payments, interest charges, late fees, and other hidden costs. If not used responsibly, they can easily spiral into a debt trap.
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Every credit card comes with an interest rate, which means you'll be charged a fixed percentage on the amount you borrow. Credit card interest rates are described as an Annual Percentage Rate (APR), which is the yearly rate charged on outstanding balances if you don't pay your bill in full every month. Generally, the APR for credit cards ranges between 24% and 40%. However, many card issuers also charge APRs as high as 48-50%. The actual calculation of interest happens on a daily basis.
If you fail to repay the full amount, the lender will charge interest on the outstanding amount. If you want to avoid paying interest, then most credit cards come with an interest-free period ranging from 20 to 50 days. Pay within the time limit and get rid of interest rates.
Different banks and lending institutions have varying interest rates. They depend on the type of card, credit score, repayment history and bank policies. Some cards may offer lower interest rates but higher annual fees, while some may have higher interest rates but fewer charges.
Moneycontrol has partnered with leading credit card companies to provide access to multiple cards with the most affordable interest rates. You can apply for multiple lifetime-free credit cards in a completely digital process through the Moneycontrol app and website.
Although APR is shown as a yearly percentage, the interest rate is calculated daily. The banks and lending institutions divide the annual interest rate by 365 days, which gives a daily interest rate. Then, they apply this rate to the amount you didn't pay, and multiply it by the number of days the bill is unpaid.
For example, if the APR is 36%, then the monthly interest rate would be 3% and the daily would be 0.098%. Suppose you didn't pay Rs 10,000 from your last bill and it's been 30 days since the due date has passed, then the interest calculated would be Rs 10,000 multiplied by the daily interest rate multiplied by the total number of days.
Rs 10,000 x 0.098% x 30 = Rs 294
So, the bank will charge Rs 294 as interest after 30 days of non-payment.
The minimal amount you have to pay by the due date to maintain the good standing of your credit card account is called the minimum payment. It is usually calculated as a flat amount (let's say Rs 200) or a small percentage (usually 5% in India) of your entire balance, whichever is higher.
Suppose you don't have enough cash at the moment and the due date is near, then you can pay the minimum amount to avoid interest charges.
For example, if your balance is Rs 20,000 and the minimum payment is 3%, then you will have to pay Rs 600.
Although paying the minimum amount due keeps your account active and prevents late fees, it is generally not advised as a long-term payment strategy because it might result in high interest rates and debt accumulation.
If possible, try to pay off your entire credit card balance each month to avoid interest charges. Even if you are unable to pay off the entire balance, try to pay more than the minimum to shorten the time it takes to repay your debt and save on interest.
If you are looking for affordable credit cards with low interest rates, Moneycontrol offers access to several lifetime-free cards. Through the Moneycontrol app and website, you can apply for multiple credit cards from leading card issuers. You can pick a credit card with attractive features as per your needs and the entire application process is 100% paperless, which ensures quick approval.
When used properly, credit cards can be beneficial. Always make an effort to pay on time and control your expenses. This way, you can make use of credit cards without getting into debt.
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