Interest Free Period On Credit Card: Be Careful In Understanding Or Lose Money

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When selling a credit card, executives of banks and institutions selling the cards often talk of interest free grace period of 45-50 days.

While that is of course the case and they are not lying, what you need to understand that every transaction does not have a grace period of 45-50 days.

Interest Free Period On Credit Card: Be Careful In Understanding Or Lose Money
Let us now understand this with an example. Let us say that Vijay has taken a credit card from a bank.

Now, let us say that Vijay's billing cycle would be from 5th of every month and he would be handed 45 days, to pay the bill, which means he has to pay the same by the 25th of the subsequent month. If he underatkes a trsnaction on April 6, his due date becomes May 25.

Now, if has undertakes a transaction on the 6th of each month, he gets a grace period of 45-days.

But, for example, if he has undertaken a transaction on 4th of each month, since his billing cycle is 25th of each month, he would get a grace period of just 21 days.

If he calculates 45-days from the 4th, he is making a mistake and will end-up paying interest charges. So, be careful.

This is the case for every credit card and if you undertake a huge transaction on the first date of your billing cycle you stand to gain or else you stand to lose.

So how do you benefit?

If you are a person who spends large amounts on credit card, it certainly benefits you. This is because, you pay by credit card and avail the interest free period. In the meantime, the funds meant to pay the credit card bill continues to attract interest in your savings account.

If you have two credit cards, make sure that you use them alternatively at the start of the credit cycle. However, it is important to also remember that if both the credit cards have a similar billing cycle, you would not gain much.

Why you should pay the entire amount outstanding?

It is important to understand that credit card outstandings in its entirety or else you may end-up paying huge interest of close to 36-45 per cent per annum, depending on the bank.

We have covered an article on why you should pay the entire amount outstanding, which readers could read here

Read more about: credit cards
Story first published: Thursday, April 7, 2016, 8:39 [IST]
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