Last Updated on February 17, 2024 by Nasir Hanif
Many users have a common understanding of credit card interest rates. It may seem complicated, but it is very easy to understand. Continue reading the article to understand credit cards and their interest rates better.
Credit card issuers charge an interest rate called a finance charge on the borrowed amount, called the interest rate. The interest rate is different for different lenders and depends on the credit card type. Continue reading to understand more about credit card interest rates
How to calculate the interest rate?
In India, the interest rate is calculated as per the Annual Percentage Rate, APR. This interest rate is calculated for the entire year instead of on a monthly basis. However, when the interest rate for monthly transactions is calculated, then MPR is applied, which is the Monthly Percentage Rate. The MPR and the APR vary between lenders and the kind of credit card. Hence, it is important to know about credit card interest rates. You must inquire about your credit card’s APR when you apply for them.
What transactions cause interest charges?
Here are some situations when credit card issuers charge interest on transactions made by credit cards-
- If you only pay the minimum due amount for the monthly cycle.
- If you fail to clear the outstanding amount before the due date has passed.
- If you use your card for cash withdrawal. That means interest is charged when you use your card at the ATM to withdraw any money.
- If you repay an amount that is less than the minimum amount.
- If you carry forward any amount that is due next month. However, if you clear all outstanding amounts before the due date, you will not have to pay any charges.
What influences the rate of interest for credit cards?
Credit card companies consider your credit score as one of the primary factors when deciding on the interest rate. However, other factors also influence the rate of interest. Some factors are listed below-
1. Outstanding amount
This amount is your borrowed money. The issuers will check your credit limit and the amount you may have used while checking the rate of interest. If you are responsible for your finance, you will have a low credit ratio. However, if your ratio is high, you will be charged a high-interest rate on your card.
2. Payment history
Your repayment history tells the banks everything they need to know about your creditworthiness and your capacity to settle your dues. Suppose a credit card issuer like Bajaj Finserv sees you have no or minimum outstanding credit and have made regular repayments. In that case, you will not only have a good credit score but also get offers for low-interest rate credit cards. However, if you have ever defaulted on payments, then your credit score will be low, and you will attract high-interest credit cards.
Apart from these factors, the kind of credit and the credit history’s length also affect the interest rate.
Using an interest calculator
It can be tough if you try to calculate your credit cards interest without a calculator. For ease of experience, Bajaj Finserv offers an interest rate calculator on its website. You can easily enter the details in the calculator and use it. It automatically shows how much interest will be paid and the total amount that will be paid.
If you already have a balance on your credit card, you can transfer that amount to a low-interest credit card. Many cards with low credit card interest rates offer periods from 6 to 18 months where they do not charge any interest. That can help you save money and pay the balance without increasing the amount. Just remember to continue paying so you do not stall and increase your interest rate.