Credit card interest rates are regarded as the economic fuel that makes card issuing companies so profitable. As a cardholder, if you are late on your monthly bill payments, particular charges will be applicable. Such charges comprise an interest, among other fees, which is levied on the borrowed amount. The rate of interest applicable for late bill payments varies across financial companies.
For credit cards, interest is levied for two cases –
- When cardholders pay the minimum due amount, and
- When they make payments that are lower than the total amount due on the card.
Besides the interest rate and penalty charges, cardholders are also required to pay other types of fees such as annual charges and service charges to the card issuer. In order to avoid paying such charges, it is advised to opt for a credit card wisely and choose a card issuer that does not ask for such charges.
Relevant facts related to credit card interest rates
There are several rules and guidelines that govern the payable interest for credit cards, they are –
- Cardholders are required to pay interest when they are unable to repay the total outstanding due on their monthly credit card bill. This indicates that as a cardholder, if you pay the total amount due and there is no outstanding balance on your credit card, the card issuer will not charge you any payable interest.
- Financial institutions calculate the credit card interest rates as an annual percentage rate, also referred to as APR. As per APR, the calculation of the interest is done on the credit balance of one whole year.
Several financial institutions also calculate the levied interest on a monthly percentage rate, which is commonly known as MPR. Some card issuers also use both APR and MPR depending on the type of a credit card.
- During your monthly credit card bill payments, you will notice the two sections – the minimum amount due and the total amount due. If you are able to pay the total amount due at the end of the billing cycle, no interest will be charged.
You will also not be required to pay charges for late bill payment if you clear the minimum amount due. However, the total amount due will be carried over to the next billing cycle and might also incur interest.
- Cardholders are also not charged any interest on late bill payments in case of credit cards with a 0% promotional interest rates. However, in case of such credit cards, the processing fees, annual fees and other charges may be higher than ordinary credit cards.
- As a credit card user, if you withdraw cash from an ATM, you are charged with interest by your financial institution.
In case of premium cards such as the Bajaj Card, cardholders are not required to pay any interest for such cash withdrawals from ATMs for up to 50 days.
Instead of any payable interest, a nominal processing fee is charged to the cardholders. This falls among the exclusive benefits of a SuperCard that other credit cards do not usually offer.
So, among the essential things, you must know the calculation and application of credit card interest rates before applying for one. Additionally, it is also advisable to know how to reduce credit card interest and save money.