Finance charges or credit card interest rates are different from one credit card issuer (bank or financial company) to another, and can be different across the gamut of credit cards from the same issuer.
Before you opt for a credit card you may think is the best credit card in India, it’s vital that you know about the interest rate charged on it. The important thing to note is that credit card interest will only be charged if you have failed to pay the outstanding amount in full that you owe a credit card issuer.
Interest is also charged on cash withdrawn from ATMs. No interest is charged, however, if you settle your credit card bills on time. Customers always wish to use credit cards with low interest rates charged on loans taken against the cash limit, or those charged for outstanding balances.
You can use your credit card to make purchases during an interest-free period. This is called a credit period during which the card issuer permits you to use the card without paying cash upfront, or dipping into your own savings. In effect, this is an interest-free loan period offered by the card issuer.
When this interest-free line of credit comes to an end, your billing cycle is over, and you will receive a statement or bill you are required to settle by the due date. If you delay the payment, you will be charged a late payment fee by the card issuer, as well as interest till you pay the balance amount.
Besides interest being charged on the outstanding balance, you will be charged interest on any fresh spends as well. Many people try to tide over debt on one credit card by transferring the amount owed to another card, which is a balance transfer credit card. This is done to buy time to pay the credit card bill and to reduce the interest rates.
Reducing Interest on Credit Cards
A credit card is a convenient and easy way to purchase goods and services. While it comes with its rewards, it can be a nemesis if not used judicially. It’s tempting to have a digital payment tool in your pocket that lets you think the sky’s the limit in terms of spending. This leads to careless use, landing you in a debt trap you don’t want. The best credit cards in India inherently come with low interest rates, but the interest on outstanding amounts that aren’t paid can be quite hefty. Here are some handy tips to help reduce interest on balances on your card.
- Settle bills by the due date – The best way to reduce balance interest is to avoid having a balance at all. If you pay your credit card bill by the due date, you prevent yourself from being charged any interest, as no balance/outstanding amount is carried forward.
- Pay the full amount – Every credit card bill comes with a minimum amount due to be paid. On Visa and MasterCard credit cards, this is about 5% of your total bill. If you pay only the minimum amount due, the rest of the amount is carried forward to the next billing cycle and interest is charged on it. Although you can still use your credit card, you will be charged interest on new expenses as well. It’s better, therefore, to settle the total bill. Typically, credit cards offer an interest-free period for you to spend in, lasting up to 45 days, provided you settle your previous bills on time.
- Avoid ATM use – You can use your credit card as an ATM card to withdraw cash from any ATM, besides the card issuer’s ATMs. However, if you do, you will be charged a processing fee as well as interest (from the first day that you withdraw till you settle your bill) on the amount you withdraw. Some cards like the Bajaj Finserv RBL Bank Super Card have interest-free use of ATMs for up to 50 days, but a processing fee is charged.
- opt for balance transfer – In case you do not have funds to settle your credit card dues, you can go in for a balance transfer credit card. If you have another credit card, you can transfer any outstanding amount onto the other card which has a later due date for payment, along with lower interest rates. This bides you time to settle your bill.
- EMI conversion – If you want to spend on some big-ticket items with your credit card, it’s a good idea to convert your entire payment into EMIs. You may be charged interest with every EMI you pay, but it will be significantly lower than the interest charged in case you default on the entire payment of the item, by not settling your credit card bill on time.