How Interest Rate On Credit Card Is Calculated?

The credit card comes as a rescue and provides a credit extended for free for some days after which the holder needs to service the debt in full and in case only the minimum amount due is paid back to the card issuing institution or the payment that is made towards credit card usage is short of the total due amount.

How Interest Rate On Credit Card Is Calculated?

So, the interest rate also referred as finance charge in the credit card world is charged when the person holding the credit card is unable to service the full debt by the due date. Hence it may not be incorrect to say that if you pay the full amount spent using a credit card by the due date, you will have to bear no interest charges.

Understanding interest rate calculation on credit cards

It is charged on the amount unpaid by you for a particular billing cycle. Let's say for your credit card, the credit cycle runs between January 8 to February 9 and for it the statement is issued on February 15 and within that period you made purchase worth Rs. 10,000. And here the due date for you to tender the payment is February 20 and the minimum amount due is Rs. 3000.

So, here are the cases that invite interest charges:

If you pay off the full borrowed amount of Rs. 10000 by the due date, you can avoid interest charges.

If you pay just the minimum outstanding balance, you will have to be face interest charges on the balance amount of Rs. 7000.

In case you pay less than the minimum amount due then you will have to pay interest on the entire borrowed amount of Rs. 10000.

Few important points that need your attention:

It is easy to pay off your credit card debt when you convert it into EMI installments. Also, it attracts lower interest, so you can simply ask your institution to switch to this facility.

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