Credit card companies charge an interest amount on the money that they lend through their credit cards. Although the credit card interest rate varies depending on the credit card issuer, knowing how to calculate interest on your credit card bills will help to maintain a good credit score.
Here is a comprehensive list of the credit card interest rates charged by some of the leading banks in our country.
|Bank||Interest Rate (MPR)||Interest Rate (APR)|
|State Bank of India||Up to 3.5%||Up to 42%|
|Yes Bank||1.2% to 2.4%||14.40% to 28.8%|
|Kotak Mahindra Bank||Up to 3.5%||Up to 42%|
|IndusInd Bank||Up to 3.83%||Up to 46%|
APR = Annual Percentage Rate
Here is a list of some of the credit cards in India that have a high-interest rate:
|American Express Platinum Reserve||3.5%||42%|
|American Express Membership Rewards||3.5%||42%|
|HDFC Regalia First||3.49%||41.88%|
|Standard Chartered Manhattan Platinum||3.49%||41.88%|
Here are some of the top credit cards that offer low-interest rates:
|Credit Card||Interest Rate Per Month|
|SBI Advantage Platinum||1.99%|
|SBI Advantage Gold and More||1.99%|
|ICICI Bank Instant Platinum||2.49%|
|ICICI Bank Instant Gold||2.49%|
*Please note that the interest rates are subject to change at the bank’s sole discretion.
A credit card company lends us money for our purchases which we have to return to them along with an interest. A credit card interest rate is the rate charged by a credit card company for its services.
In simpler words, you need to pay an interest amount to the company because they offered you a ‘short-term loan’ for your purchases.
The interest on a credit card is charged when you have an outstanding amount (amount yet to be paid) in your credit card account. The credit card company charges interest on a daily basis as long as the outstanding amount stays in your account.
Each credit card company calculates your credit card interest by following its Annual Percentage Rate (APR). However, the credit card interest is calculated daily by using the daily periodic rate (DPR). The daily periodic rate reflects your daily interest charge. It can be calculated by dividing the Annual Percentage Rate (APR) by 365.
To calculate credit card interest, the first thing you need to know is the APR decided by your credit card company. The APR varies from one credit card to the other.
Here are three simple steps you can follow to calculate your monthly credit card interest.
Step 1: Calculate the DPR
As noted above, you can calculate the daily periodic rate of your credit card by dividing the APR by 365. You can find the APR in the agreement detail that is issued by the credit card company. Don’t forget to convert the APR into a decimal number so that it can be divided by 365.
DPR = (APR/100)/365
For example, if your card has an 18% APR, your DPR will be 0.00049%.
Note: Most credit card companies or banks also offer cards that follow a monthly percentage rate (MPR).
Step 2: Calculate the average of your Daily Credit Card Balance
To calculate the average of your daily credit card balance during the billing cycle, you need to add the balance values of each day and divide the summation by the total number of days in the billing cycle.
Let’s understand this with the help of an example. Let’s say your billing cycle is 4 days and the following balances on your credit card for each day of the billing cycle.
|Day 1||Rs. 5000 purchase||Rs. 5000|
|Day 2||None||Rs. 5000|
|Day 3||None||Rs. 5000|
|Day 4||Rs. 1000 purchase||Rs. 6000|
So, the average of your daily credit card balance is (5000+5000+5000+6000)/4 = Rs 5250.
This way, you can calculate the average daily credit card balance. Please note that if you have any outstanding amount from last month, it should be added to the summation as well.
Step 3: Calculate how much interest you have to pay
Here is the formula to calculate your credit card interest.
Credit Card Interest = (Average Daily Balance x DPR) / Number of Days in Your Billing Cycle
If you go by the information in the examples, the interest would be
(5250 x 0.00049) / 4 = Rs 0.64.
Credit card companies offer an interest-free period to their users. The grace period varies on a company-to-company basis. It starts from the day the monthly statement is generated to the day the payment is due.
If you pay your credit card bill during the interest-free period, there will be no outstanding amount on your card that you will be charged interest for. Remember to pay your bills on time to avoid the hassles of credit card interest rates.
Credit cards can be of immense help if you plan your financial expenses accordingly. You can escape the hassles of calculating and paying your credit card interest by keeping a check on your monthly credit card statement. Pay the bill on time and enjoy the various offers and rewards that a credit card has to offer!
Ans: You do not have to pay any interest if you pay the bill in full between the monthly statement date and the due date of the bill. Avoid keeping any outstanding amount on your card for each billing cycle.
Ans: The typical monthly interest rate on credit cards can vary between 2% to 4%. It depends on the credit card issuing company. It is advisable to select companies that offer low credit card interest rates.
Ans: Interest will be charged on your card’s outstanding balance even if you pay the minimum amount due. The remaining amount will get carried forward to the next bill.
Ans: The grace period depends on the sole discretion of the card-issuing company or bank. If it is offered by the issuer, the interest-free period can be anywhere from 18-48 days to 25-55 days.
Ans: The interest rates on credit cards may change at the will of the card-issuing company or bank. However, the issuer will provide a notice to the users before implementing any changes.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.