Understanding Credit Card Interest Rates

Whether you’re a first-time Credit Card holder or an experienced user looking to get a better deal, understanding APR and how it works is essential to making the best financial decisions. Knowing what to look for when comparing offers and managing your credit effectively can help you save money in the long run. 

The rate of interest you pay on the money you borrow from the Credit Card company can make a huge difference in how much you pay in total, over time.

Credit card interest rates

Credit card interest rates is a measure of the cost of borrowing money on a Credit Card. It is essentially the interest rate on the Credit Card balance that the Credit Card issuer charges to the cardholder

Credit Card interest rate, or APR (annual percentage rate), is an important factor to consider when choosing a Credit Card, as it will determine the amount of interest charged on any outstanding balances. Credit card interest rates are usually higher than the interest rates charged on other loans, such as mortgages and Car Loans.

Credit Cards are unsecured loans, meaning that the card issuer does not have a lien on your property if you fail to make payments. Thus, Credit Card companies charge higher interest rates to protect themselves from the risk of default.

How are Credit card interest rates calculated?

Credit card interest rate is typically expressed as a percentage. It is calculated by taking the total amount of interest you will be charged over a year, divided by the total amount of credit you have been extended. The APR may sometimes include other fees such as annual, balance transfer, and cash advance fees.

Also Read: 14 different types of Credit Card charges & fees

Factors that affect the Credit Card interest rates

Creditworthiness

Credit Card companies use a variety of factors to determine your creditworthiness, including credit history, income and other financial data. Credit Card companies use this information to evaluate your risk level and determine the APR they will offer. 

Type of card

Some Credit Cards have a fixed APR, while others may have an introductory APR lower than the ongoing APR. Additionally, some Credit Cards may have a variable APR that can change over time. Choose from Axis Bank's wide range of Credit Cards and apply for the Credit Card that best suits your needs.

Interest rate

Credit Card companies will determine the interest rate they will charge based on your creditworthiness and the type of card you own. 

Fees

Credit card companies may charge additional fees, such as an annual fee or a balance transfer fee. These fees can impact the overall cost of borrowing as the costs might increase.

Rewards

Some Credit Cards offer rewards for spending or for making timely payments. These rewards might result in an overall reduction in costs.

When is interest rate charged on Credit Cards?

Credit card interest is incurred when the full monthly bill isn't paid, with rates usually ranging from 35-40% annually. If you only pay the minimum amount, the remaining balance accumulates interest, and the minimum payment increases monthly. Interest accrues daily from the purchase date, not the end of the billing cycle. You can use Axis Bank's EMI calculator to get accurate results on your Credit Card interest rate.

What is Credit Card Interest-free Period?

The interest-free or grace period of a credit card spans from the transaction date to the payment due date, typically ranging from 18 to 55 days, depending on the issuer or type of credit card. During this period, no interest is applied on transaction amount if the cardholder settles the entire bill on or before the due date.

Type of transactions that attract interest charges

In addition to interest accrued on unpaid balances, credit card issuers often charge additional interest on cash withdrawals made through the credit card. When you use your credit card to withdraw cash, a cash advance fee is typically applied upfront, and interest begins accruing immediately. The interest rates for cash advances are often higher than those for regular purchases, and there is usually no grace period – meaning interest accumulates from the moment of the withdrawal.

Conclusion

Understanding Credit Card interest rates is essential to making sound financial decisions regarding Credit Cards. Knowing the different types of interest charged and the factors that determine it can help you make an informed decision when selecting a Credit Card. With careful management, you can take advantage of the rewards and features offered by Credit Cards and save money in the long run.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.