How interest charged on your credit cards?

If you purchase or shop through eCommerce websites then they mostly accept the credit cards instead of debit card. Debit card also accepted, but credit cards are widely accepted like even you can shot in the foreign eCommerce websites like Amazon using the credit card. Credit Cards are used widely and it has few special advantages if you maintain without paying the interest charges for the outstanding bills.

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The interest rates charged against your credit card is much higher than any other loans products. Most of the people who own the credit card still not aware how the interest rates calculated on the credit cards. This article explores few facts on how the interest rates calculated and why you must be careful on paying the extra money. If you are interested in receiving the future articles, please subscribe here.

1. Interest will be charged on your credit card only if you have paid the partial or minimum amount due on the outstanding bills. This is called as ’revolving credit facility’.
2. There is a interest free credit period is available with each credit card. This period is defined between the day you purchased and the next amount due date. Till that time there is no interest is charged, unless if the last statement due is paid at the time of purchase.
3. If the credit card is on revolving credit, then whatever purchase you are making, the interest will be added immediately and there won’t be any interest free period if the card is in revolving credit period.
4. Credit card companies normally reveal the interest rates on monthly percentage. You must be very careful on realizing the annual rate for outstanding amount. This percentage ranges from 37-42%. It is very high compared to the home loans or personal loans.
5. A late payment fee will be charged if the minimum amount due is not paid on the due date. The fee also carries the service tax. Note that the late payment fee on credit card ranges from Rs. 200 to Rs. 700. This caries for each bank.

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To understand how the credit card charges work, lets see the below table with example transactions:

In the example 1, all the outstanding amount is paid, so when you start purchasing after the due date, card holder will get the interest free period till the next due date.

In the example 2,  partially paid. The outstanding amount will be charged from the next day of due date. Also what ever new purchases you are making after the due date will be immediately charged and there won’t be any interest free period.

In the example 3, it is similar to example 2. Only difference is here the whole amount is pending.

I hope this explanation would have provided good idea on how the interests charged on your credit card. If you have any questions, please post it in the comments section. If you are interested in receiving the future articles, please subscribe here.