We’ve become a little less scared of sudden expenses or month-end financial shortages – thanks to credit cards. Right? But it would be a little extra pleasing if we could know all the extra charges that fall into our statement each month, right?
One of those most important charges that come to us without fail is – credit card interest. If it isn’t for interest rates, what else would we be considerate of? We are so careful with our credit card bills because we don’t want to be charged extra.
Why not be extra sure this time? Let’s try calculating the rate of interest you are charged by your credit card – so that you will never overlook the extra charges.
But before we could do all that – let’s get our basics straight.
Understanding Credit Card Interest Rate
We know and understand this isn’t a specific topic. It is not a topic that would give you the answer on how to calculate your SBI Credit card interest rate. It is a generic topic.
But still, we are not going to leave it just at the tips, irrespective of your card – here, you will learn how to calculate your credit card interest rate.
What is a Credit Card Interest Rate?
In one simple line – a credit card’s interest rate is the price you would pay for borrowing money. Usually, for credit cards – the interest rates are stated on a yearly basis. This is basically known as the annual percentage rate or APR.
How Does Credit Card Interest Work?
So, let’s understand how these interest rates work on your credit card.
So, the interest charges on your credit card are applied in dire cases, like when you have not fully paid your credit card bill. There are cases when your credit card will not charge you with any interest, and that is:
- When you pay on time.
- When you pay your bills in full.
You can easily enjoy interest-free periods on your credit card – so all those responsible credit card users can walk around without worry.
This interest-free period on your credit card is a great deal – a huge benefit. You can save up, spend daily, and also be covered over sudden expenses, as mentioned above.
So, when really is this interest charged? Let’s understand.
When is the Interest Rate Charged on Any Credit Cards?
The interest rate on credit cards is charged when you have an outstanding amount in your account or when you have borrowed a cash advance. The below-mentioned situations can lead to this:
- When you pay only the minimum amount due.
- When you do not make a payment at all.
- When you pay an amount lower than the total amount due.
- When you have withdrawn cash from an ATM with your card.
How to Calculate Credit Card Interest Rate?
If you have a credit card, you have to know that you would incur interest in various scenarios. The interest rate levied on credit cards varies for different cardholders, too. So, as a cardholder, it is essential for you to be aware of the charges applicable to the card.
Formula For Interest Calculations:
(Number of days from the date of transaction x Outstanding x Interest rate per month x 12 months)/365.
We can use this formula in different scenarios.
Mr. X is the credit card holder.
On 2 January 2022, he made a transaction of Rs. 10,000.
The statement on 5th January 2022 is as follows:
Minimum Amount to be paid = Rs. 550 (with 5%)
Total Amount due = Rs. 11,000
Due date: 27th January 2022.
Interest p.a: 42%.
Scenario 1: Complete payment is made by Mr. X.
There would be no interest charged on his transaction.
Scenario 2: Partial payment is made towards this bill by Mr. X.
The payment made is Rs. 5,500.
The date of payment is – 22nd January.
The next statement is on 5 February 2022.
Other purchases made between 5th January and 5th Fed – None.
Total Interest = (Interest on the total Amount from the date of purchase until the partial payment day) + (Interest on the remaining amount left from the partial payment date until the next statement generation Date)
Interest on the entire Amount from the purchase date till the partial payment date is Rs. 265.8.
The interest levied for 15 days on the remaining amount = Rs. 94.9.
Therefore – the total interest charged is Rs. 265.8 + Rs. 94.9 = Rs. 360.7.
Scenario 3: When the cardholder pays partial payment after the due date, late charges and interest rates are added. The following happens:
Payment made = Rs. 5,500
Date of Payment: 29th January, 2022.
Next statement date – 5th February 2022.
Transactions between 7th December and 7th January – None.
Calculations:
Interest applicable for 28 days = Rs. 354.4 [28*11000*42%/365].
Interest charged for eight days after the partial payment is made until the next statement = Rs. 50.6 [8*5500*42%/365].
Total Interest Charges = Rs. 354.4 + Rs. 50.6 = Rs. 405.
Scenario 4: Mr. X withdraws cash from the ATM; interest rate and cash withdrawal charges would be applicable. Given the following scenario:
Withdrawal amount – Rs. 10,000.
Withdrawal date – 2nd January
Date of Payment of withdrawal amount – 5th of Feb.
Number of days on which interest will be applicable = 4
Interest = Rs. 46.03 [4*10000*42%/365].
These are just a couple of examples of the days and types of withdrawals or transactions you can make on your credit card. But, make sure you always know how much interest you are being charged by the bank as interest alone on your credit card.
When you know the answer to this – you will most likely make smarter moves.
Conclusion
Sometimes, the amounts might be small, and you might even overlook these interest charges. A mistake a lot of people make. You would not have to do that here. When you are sure – you can be a smarter credit card holder.
