How is the interest rate calculated on a credit card?

2 min read

Credit card interest rates are the charges charged by credit card issuers on the borrowed amount. However, interest charges are applicable only when cardholders fail to pay their outstanding bill in full each month.

Credit card bills are generated at the end of each billing cycle and the credit card user has to pay the outstanding amount before the payment due date and grace period combined.

If a cardholder fails to pay the outstanding amount in time, then interest is charged on the utilised credit limit for the billing cycle. The period of interest calculation is charged from the day of default up to the payment date.

Here’s an example to understand this better – If the credit card billing cycle ends on the 20th of every month and comes with a grace period of 14 days, the last day for bill payment is the 5th of the next month.

Assume that there are two transactions, on the 5th and 9th of a month. If bill payment is made on the 10th, the purchase made on 5th January will attract interest for five days in case of default. For transactions made on 9th January, interest calculation is only for one day.

Bajaj Finserv provides low-interest rate credit cards at 3.99% per month (47.88% per annum).

Credit card interest rates are only applicable if the cardholder fails to pay the minimum amount due within the grace period. The minimum amount may also contain the interest component. Hence, paying the total amount due helps cardholders avoid paying any additional interest.

How are interest rates calculated?

Credit Card interest rates are calculated based on the monthly percentage rate (MPR) and the annual percentage rate (APR). APR is the interest rate for the whole year. MPR is the rate that is applied while calculating interest rates for monthly dues.

Credit cards with no annual fee

The annual fee is a charge required to renew a credit card. Bajaj Finserv provides credit cards with no annual fee.

Apply for a Bajaj Finserv RBL Bank SuperCard today and get low-interest rates credit card offers.

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