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Last Updated : Sep 18, 2019 01:22 PM IST | Source:

Credit card interest rates: How to calculate interest rate on credit card

Credit Card Interest Rates - Click here to know Credit Card Interest rates charged by various banks on different types of credit card & how to calculate interest on a credit card at Moneycontrol.

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This interest is applied only in two cases—one where the cardholder pays the minimum amount due and two when the cardholder makes any payment that is less than the total amount due

An interest rate or finance charge is levied on a credit cardholder who is unable to return the full borrowed amount. In simple terms, it is the price that you pay for borrowing money and not returning the total outstanding amount by the due date.

This interest is applied only in two cases—one where the cardholder pays the minimum amount due and two when the cardholder makes any payment that is less than the total amount due. Therefore, the interest rate is completely avoidable by paying off balance amounts in full within the due date.


Every bank or financial institution that offers credit cards offers its customers a grace period or interest-free for purchases. This period is between the transaction date and the due date. So if you make the payment within this grace period, no interest is charged on your credit.

Different banks and financial institutions also have different interest rates. The rate may also vary from card to card.


Credit Card Interest Rates Charged by Various Banks

All banks and financial institutions broadly calculate interest rates as an annual percentage rate (APR) which is the interest rate charged on the balance for a year. However, when it comes to application, a monthly percentage rate (MPR) is levied every month on outstanding dues. As discussed earlier, all such institutions charge different APRs and MPRs. They also charge different rates for different types of credit cards.

The State Bank of India charges up to 3.35 per cent per month and an APR of up to 40.2 per cent per annum. The interest rates are lower for secured card types, which are issued against collateral. The bank charges an interest rate of 2.25 per cent MPR and a 30 per cent per annum APR. For unsecured cards, the rates are higher at 3.35 per cent MPR or 40.2 per cent APR.

In case of HDFC Bank, the rate of interest can go up to 3.4 per cent per month and starts at 1.99 per cent per month. The bank allows you to convert your balance into EMIs so you can pay off the credit on your own time. The interest charged on credit for those opting for EMIs is much lower than the regular credit card rates.

The Bank of Baroda offers credit cards with interest rates close to 2.5 per cent month or an APR of 30 per cent. If you choose to pay your credit using EMIs, the interest rates could go down to 15-16 per cent per annum.

ICICI Bank offers a host of credit cards based on your income. All cards have different interest rates ranging from as low as 1.25 per cent to 3.5 per cent. The APR charged on credit could be up to 42 per cent.

Yes Bank offers credit cards with interest rates up to 2.75 per cent per month. Kotak Mahindra Bank credit cards levy an interest rate of up to 3.5 per cent per month. Axis Bank offers credit cards with interests up to 47 per cent annually. HSBC Bank levies finance charges of up to 3.5 per cent per month.

How Are Credit Card Interest Rates Calculated?

Interest or finance charges are calculated on the pending amount for a particular bill cycle. Let us assume your account statement for the credit cycle of January 5 to February 4 is issued to you on February 10. The statement shows that within the credit cycle you made purchases worth Rs10,000. Let us also assume that your due date is February 15 and the minimum amount due is Rs3,000.

In this scenario, if you pay the entire balance, i.e., Rs10,000, no interest will be charged. If you pay the minimum amount due, i.e., Rs3,000 or more, the interest will be charged on the remaining balance which is Rs7,000. No late fee charges will be levied either. You can make new purchases in the new credit cycle. However, if you pay less than the minimum amount due, the interest will be charged on Rs10,000. Any new purchases in the next credit cycle will also invite interest.

Credit Card Interest Rates Important Facts to Keep in Mind

The most important fact about credit card interest rates is that they can be completely avoided. If payment of the entire outstanding amount is done in full on or before the due date, no interest rate or finance charges will be applicable.

  1. The due date is an important factor. The credit taken from the bank has to be repaid within the due date mentioned in your credit card account statement. If you are late in your payment, a penalty is charged on the credit.

  2. Every bank offers an interest-free period, also known as grace period, for purchases made on your credit card. This is the phase between the day you make a purchase until the due date. If you pay back within that phase, no interest is levied.

  3. Banks apply an Annual Percentage Rate (APR) on balance on credit cards. However, when interest is calculated, it based on a Monthly Percentage Rate (MPR).

  4. Almost all banks and financial institutions allow credit cardholders to pay the credit in instalments. The EMI scheme invites lower interest rate. So, to ease the burden, you can ask your bank to convert the credit into EMIs.



How do I know what charges and fees have been charged on my credit card?

To find out all the charges and fees levied on your credit card, you have to check your account statement. The account statement can be found either in your email or you can access it via online banking or mobile banking. If you have subscribed for a hard copy of your account statement, the bank sends it every month to your registered address. At the end of the account statement you can see if any charges and fee have been levied such as late payment fee, finance charges or charges for ATM withdrawal.


What happens when I exceed my credit card limit?

If you exceed your credit limit, your transaction may be declined. However, some banks also let customers go over their credit limit. However, an over limit charge is applied to the balance.


Will interest be applied if I pay the minimum amount due every month?

Yes. Credit card rate of interest or finance charges will be applied to your credit card account even if you pay your minimum amount due or even more. The rate is applied to the balance after deducting the amount you pay.


Can I pay my credit card balance in instalments?

Yes. Banks and financial institutions offer credit cardholders to pay their debt in equal instalments over a period of time. The interest rate applied on EMI systems is much lower than the general interest rates on credit card payments. You can get in touch with your bank executives to convert your payment method to EMI.
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First Published on Jul 16, 2019 09:19 am
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