Credit Card Interest Rates Explained – Smart Ways to Save

Let's assume you don't know what a credit card is. Well, it is a tool that allows you to borrow money from a bank with an agreement to repay it over time. And for this convenience, you have to pay interest to the bank. 

Each time you swipe your credit card for a purchase, the bank pays the amount on your behalf. You'll then have to pay it back to the bank– along with the interest if there’s any balance remaining from the previous month's bill. 

While considering the challenges faced by credit card users, understanding how credit card interest rates work is important. 

In this article, we'll cover this in detail and share tips and tricks on how you can save on interest charges.

Table of Contents

• What is a Credit Card Interest Rate, and How Does it Work?
• When is Interest Charged on Credit Cards?
• Things to Do to Save on Interest Rate
• Interest Rates Bank-Wise: HDFC, SBI, Axis, ICICI and IDFC FIRST

What is a Credit Card Interest Rate, and How Does it Work?

The credit card interest rate, often referred to as the Annual Percentage Rate (APR), is the amount charged by the bank for using a credit card. This interest varies from bank to bank and depends on the type of credit card you own. 

Unlike traditional loans, which offer a lump sum amount, credit cards come with a predetermined limit that can be used to buy things when needed. 

Now comes the point of understanding how interest gets applied.

Let's suppose you don't pay the balance in full by the due date: Interest gets compounded daily on the outstanding balance, which means that each day's interest will get added to the balance
For example, if you have an 18% APR on a balance of ₹10,000, the monthly interest rate would be approximately 1.5% (18%/12).
Using 1.5% interest charges for a month, the balance unpaid would be calculated as ₹10,000 x 1.5% = ₹150 interest per month.

When is Interest Charged on Credit Cards?

Once your credit card statement is generated, the interest gets applied mostly in these two situations:

• If you don't pay the full amount by the due date
• If you miss a monthly credit card payment

Interest is calculated daily from the date of purchase, not the end of the billing cycle. If you don't pay the full balance by the due date, interest is applied to the outstanding amount.

Missing a monthly payment is a big mistake that should be avoided. However, if you look closely at the first case, you’ll understand that you would be paying interest on your interest if you pay only the minimum due amount. 

The moment you pay the minimum due amount or anything less than the full amount, interest will be applied to the outstanding balance. Hence, you’ll become liable for paying it in the next statement.

➡️For example: Your credit card bill for the month = ₹10,000, and minimum amount due = ₹1,000.

Now, if you only pay the minimum amount, the interest will start adding on the remaining ₹9,000. 

So, when your next month's statement arrives, you'll see the ₹9,000 + interest charges in the bill. 
This is why paying off the full balance each month is key to avoiding extra costs!

There is one more situation where you can be charged interest = Cash Advances: Withdrawing cash with your credit card from an ATM

Doing this will result in interest being charged starting from the date of the transaction— no grace period is given. Also, this is often charged at higher rates than regular transactions.

Wondering about what the grace period is? It’s the interest-free window offered by credit card issuers on new purchases. It is the number of days between the card's statement date and the payment due date when you don’t have to pay any interest for your purchases.

Things to Do to Save on Interest Rate

There are certain things that you should keep in mind if you don't want to pay or reduce the interest on your credit card transactions. Below are a few effective strategies to save on interest rates:

• Pay your balance in full every month: Paying off your credit card balance by the due date each month prevents interest from adding up on your purchases. By following this, you can take advantage of the offered grace period and avoid extra charges.

• Pay as soon as you can: Don't wait until the end of the billing cycle to make the payment. Paying earlier or making multiple payments in a month can help lower interest charges if you're carrying a balance and not paying it off in full each month.

• Avoid cash advances: Try not to withdraw any amount from your credit card. So that you can avoid high interest rates that too without getting a grace period.

• Pick a credit card with a low APR: Choosing a credit card with a lower APR can help minimise interest costs if you carry a balance from month to month.

Check out this blog to learn about Zero-Interest Credit Cards.

Interest Rates Bank-Wise: HDFC, SBI, Axis, ICICI and IDFC FIRST

Credit card interest rates vary from bank to bank. It's essential to review specific card terms, as rates can also depend on the card type and offers. These rates reflect the general APR typically applied when credit card balances are not paid in full. 

Here’s a summary of credit card interest rates for HDFC Bank, SBI, Axis Bank, ICICI Bank, and IDFC FIRST Bank. (Taking specific cards of each bank for their interest rates comparison.)

Bank	Interest Rate (Monthly)	Interest Rate (Annual)
HDFC Bank Card: HDFC MoneyBack Plus Credit Card	3.60% per month	43.20%
SBI Cards Card: SBI Cashback Card	3.5% per month	42%
Axis Bank Card: Axis MyZone Credit Card	3.60% per month	52.86%
ICICI Bank Card: ICICI Coral Credit Card	3.40% per month	40.80%
IDFC FIRST Bank Card: IDFC FIRST Wealth Credit Card	3.50% per month	42%

Conclusion

Credit cards can be powerful financial tools, but understanding interest rates is essential to avoid high costs. Also, always make sure to read the terms and conditions of your credit card agreement, as interest rates and fees vary from one card to another.

Unlike a loan, where interest is charged on the entire principal amount from the start, credit card interest only applies to the amount you don’t pay off by the due date.

At last, just a small yet valuable tip for you. If you want to use your credit card smartly, then there are two main factors that you keep in mind:

• Stay informed
• Stay disciplined

To take your financial discipline to the next level, consider checking Finology Select– an effective comparison platform from which you can get information about not just your credit card but all the cards that you might be eyeing.  

By doing so, you can enjoy the convenience of credit cards without the stress of big interest charges.