The Reserve Bank of India, as a part of its Payment and Settlement Systems in India: Vision – 2019-2021, is planning to enhance the usage of various payment cards via its endeavour to improve the infrastructure of credit card acceptance. The POS or Point of Sales is expected to be boosted by at least 34% to 50 lakh by the end of 2021.
Such cashless endeavours will help the economy will increase the amount of credit card transactions that at present stands at Rs.5,76,511 crore. A cut in the demand for cash and hence reduction of ‘Cash in Circulation’ is a step towards a financially digitising India.
With such financial targets set ahead, the recent trends to rely on credit cards will further be propelled. However, in the case of prospective and existing cardholders, a common concern is about credit card interest rates.
In this regard, one of the primary factors that individuals need to remember is that interest is charged only if you have missed out on bill payment within the due date. Using the credit card wisely and proper financial planning can ensure that there are lower chances of attracting interest rates on the outstanding credit.
Here are a few of the most common FAQs regarding credit card interest rates that would lend in the much-required clarity on the subject –
FAQ 1: How are interest rates on credit cards calculated?
Ans: The calculation of interest rates on credit cards is as per the Annual Percentage Rate (APR.) While APR reflects the interest rate for the entire year, in cases where monthly interest rates are essential, MPR or Monthly Percentage Rate is put to use. The APR and MPR applied on card transactions vary from one financial institution to another.
The interest rate on credit cards can vary as per the cardholder’s credit score and his/her disposable income. For instance, in case you hold a healthy CIBIL score, the interest rate charged on your card will be much lower as compared to those with lower credit.
Additionally, attracting interest rates can be substantially avoided even if you have a cash crunch, here is how – make sure to pay the minimum outstanding amount as mentioned in your credit card statement.
FAQ 2: When is interest charged on credit cards?
Ans: Interest is charged on the outstanding amount of a credit card bill if you miss out on paying the credit amount utilised within the payment due date. Consider availing borrower-friendly credit cards like Bajaj Finserv RBL Bank SuperCard that bring with it interest-free periods on –
- Cash withdrawals from ATMs for up to 50 days.
- Availing emergency loans for up to 90 days.
Note that minimal processing fees are charged.
Under such cases, the best alternative would be to opt for the NACH facility, via which there would be an automatic deduction of the bill amount from the linked bank account. Else, one can also choose to set a reminder to pay the credit card bills in a way that is the best suited for him/her.
FAQ 3: How does the interest rate on a credit card work?
Ans: Considering that you have defaulted in paying your credit card bill, your interest on the outstanding amount is compounded daily. This charge is added to the following day’s balance. Subsequently, it is essential to avoid making further purchases via the card until the clearance of the last due amount.
With the basics of credit card interest rates covered, potential cardholders can now avail payment cards sans worries of attracting interest charges. Refer to leading financers to avail the most beneficial card.