Saturday, December 2, 2023

The Ins and Outs of Credit Card Interest Rates

Credit card interest rates have become an integral part of our financial lives, providing convenience and flexibility in purchasing. However, it is crucial to understand one of the most critical aspects of credit cards: interest rates. This article will explain how interest rates work, the factors that influence them, and how you can make the most of them.

What is a Credit Card Interest Rates?

Imagine your credit card is like a friend who lends you money to buy things when you don’t have cash on hand. The credit card interest rate, or APR, is like the fee your friend charges you for letting you borrow that money.

So, if you use your credit card to buy something but don’t pay the full amount back right away, the credit card company adds this fee (the interest rate) to the remaining balance you owe. This fee is their way of making money from the service they provide, which is allowing you to buy things on credit.

To avoid paying this fee, it is a good idea to pay off your credit card balance in full each month. That way, you won’t have any leftover debt to which the interest rate can be applied.

Types of Credit Card Interest rates

Here is the list of types of credit card interest rates:-

  1. Purchase APR: This is the interest rate applied to the balance you carry when you make purchases with your credit card. It’s the most common type of APR you’ll encounter.
  2. Balance Transfer APR: If you transfer a balance from one credit card to another, this rate applies to the transferred amount.
  3. Cash Advance APR: When you withdraw cash from your credit card, you are charged a cash advance fee and a higher APR than your purchase APR.
  4. Introductory APR: Some credit cards offer promotional or introductory APRs that are lower than their regular rates for a limited time. These can be 0% APR offers for balance transfers or purchases.

When is the Interest Rate Charged on Credit Cards?

Interest rates on credit cards are charged when you carry a balance from one billing cycle to the next by not paying off the full amount you owe. Here’s how it typically works:

  1. Grace Period: Most credit cards have a grace period, usually around 21-25 days from the end of the billing cycle. During this period, if you pay your entire credit card balance in full, you won’t be charged any interest.
  2. Interest Charged: If you do not pay off the full balance by the end of the grace period, the credit card company will start charging you interest on the unpaid portion of your balance.
  3. New Purchases: When you make new purchases on your credit card, these typically won’t accrue interest immediately if you are in the grace period.
  4. Cash Advances: Cash advances, which involve withdrawing cash from your credit card, often have a higher interest rate, and interest begins accruing immediately from the day of the transaction.

Interest Rates on Top Credit Cards in India 2023

Credit CardInterest Rate Per MonthAnnual Percentage Rate (APR)
Axis Bank Ace Credit Card3.6%52.86%
SBI Card ELITE3.50%42%
HDFC Regalia Credit Card3.6%43.2%
Flipkart Axis Bank Credit Card3.4%49.36%
Amazon Pay ICICI Credit Card3.5% to 3.8%42% to 45.6%
HDFC Millennia Credit Card3.6%43.2%
Cashback SBI Credit Card3.75%45%
HDFC Bank Diners Club Privilege3.6%43.2%
HSBC Cashback Credit Card3.50%42%

Interest rates on credit cards are different from banks and financial institutions and can change over time due to various factors such as economic conditions, regulatory changes, and competition in the market.

Credit Cards with Low-interest Rates in India 2023

Low interest rate credit cards are those that charge a fairly lower rate, than the usual rate of 3.5% per month in general. These cards are highly suitable for those, who make big purchases with their credit cards.

Credit CardInterest Rate p.m.
Kotak Privy League Signature Credit Card2.49%
HDFC Diners Club Black Credit Card1.99%
HDFC Infinia Credit Card Metal Edition1.99%
Axis Burgundy Private Credit Card1.50%
Axis Bank Mangus Credit Card2.50%

How is Credit Card Interest Calculated?

Credit card interest is typically calculated daily. The most common method is the Average Daily Balance method. Here’s how it works:

  1. The issuer tracks your balance each day during the billing cycle.
  2. They sum up the daily balances and divide them by the number of days in the billing cycle.
  3. The result is multiplied by the daily interest rate.


How can I avoid paying credit card interest?

  • The most effective way to avoid paying credit card interest is to pay off your full balance each month before the end of the billing cycle’s grace period. This means you won’t carry a balance forward to accrue interest.

Do all credit cards have the same interest rates?

  • No, credit card interest rates can vary significantly among different card issuers and even among different credit cards offered by the same issuer. Your creditworthiness and the specific terms and conditions of the card determine the rate you receive.

Can I negotiate a lower interest rate on my credit card?

  • It’s possible to negotiate a lower interest rate with your credit card issuer, especially if you have a good payment history and credit score. It’s worth contacting the issuer to discuss your options.

Read More: Best Personal Finance Trends in India to Watch Out for in 2023

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