Credit cards: How interest works and how to get a lower rate

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Credit cards are handy for shopping, travel, and emergencies—but they can get expensive if you don’t understand how interest works. The good news is that with a few smart habits, you can cut down on interest charges and even qualify for lower rates. Here’s a simple explainer for everyday users.

How credit card interest is calculated

Interest is charged only when you don’t pay the full bill by the due date. Once that happens, banks charge interest daily on the unpaid balance until it’s cleared. Most cards in India charge between 36 percent and 48 percent per year, or roughly 3-4 percent per month, depending on the issuer and your credit profile.

If you make only partial payments, new purchases also start attracting interest immediately—there’s no fresh grace period until you clear the old dues in full. That’s why many cardholders feel “stuck” even after paying the minimum due each month.

What affects your card’s interest rate

Your interest rate—or Annual Percentage Rate (APR)—isn’t fixed forever. Banks adjust it based on your credit score, payment history, and spending pattern. Missed or delayed payments, high utilisation (using most of your card limit), or multiple loans can push your rate higher. A clean repayment record and low credit usage can help you qualify for a lower APR over time.

Why minimum payments cost more

Paying just the “minimum due” (usually 5 percent of your total bill) may avoid penalties, but the remaining balance keeps accruing interest. Over months, this can double or triple the amount you owe. For example, a Rs 50,000 balance at 3.5 percent monthly interest can grow to nearly Rs 60,000 in just six months if you pay only minimums.

How to get a lower rate

The easiest way to avoid interest altogether is to pay your full balance before the due date every month. But if you’re already carrying debt, here are a few ways to cut your cost:

· Ask for a rate reduction: If you’ve been a reliable customer with a strong credit score (750+), call your bank and request a lower rate. Many lenders review rates annually on request.

· Transfer to a lower-rate card: Balance transfer offers from banks often start at 0-1 percent monthly for a limited period. Use them wisely to clear debt faster.

· Convert big purchases into EMIs: If you must carry a balance, EMI conversions are cheaper than revolving debt—rates are often 16-24 percent per year versus 36-48 percent.

· Improve your credit score: Pay bills on time, reduce total card usage below 30 percent of your limit, and avoid applying for multiple new cards. Over six months, this can help you negotiate a better APR.

Why it matters

A lower rate can make a huge difference over time. For example, cutting your interest from 42 percent to 24 percent per year on a Rs 50,000 balance saves about Rs 9,000 in six months. Managing your card wisely keeps both your debt and credit score healthy, opening doors to cheaper loans later.

Bottom line

Credit cards are powerful financial tools—but only if you use them smartly. Pay on time, keep balances low, and talk to your bank about lowering your rate when your credit improves. A little awareness can save you thousands in interest and help you stay debt-free.