How Credit Card Interest rates is Calculated on Dues

Credit card interest rate is one of the primary elements that determine additional payments on the monthly outstanding of these cards in the case of a payment default. Thus, while opting for a credit card, borrowers should be careful about the applicable interest rates on the card. It can be different from one lender to another, and can also vary across the range of cards from a single issuer.

Unlike other credit instruments, credit card interest rates are only applicable if the user has not repaid the total outstanding amount of a billing cycle before the due date. In other words, card users can utilize the borrowed money without paying any interest if they clear the entire dues in time. Here is how the interest on credit cards is calculated. Before that, take a brief look at the different ways of paying these dues.

Ways to pay credit dues

Other than paying the total dues, users can opt for the minimum due or partial payment and clear the full credit card outstanding over a period as well. However, by providing this facility, lenders levy interest on the total outstanding until the complete clearance of credit card dues.

Notably, credit card interest rates are levied per day on the entire outstanding as long as the dues stay in the account.

Process of interest calculation on credit card dues

To understand credit card statements properly for interest accrued or to check for any mistakes, individuals must know about the credit card interest rate calculation process accurately. Several scenarios can accumulate interest on credit card spending. The basic formula to calculate the interest is –

[Days from the date of transaction X interest rate X total outstanding amount X 12] / 365

Here is an example of a credit card statement and its various possible scenarios –

  • Date of the transaction – 1st March 2020
  • Amount of transaction – Rs.20,000
  • End of billing period – 5th March 2020
  • Minimum amount due – Rs.1,000
  • Total amount due – Rs.20,000
  • Payment due date – 25th March 2020
  • Interest rate – 3% monthly

Scenario 1: Paid minimum due or above within the due date

  • Amount paid – Rs.10,000
  • Payment date – 20th March 2020
  • Next billing cycle ends – 5th April
  • No transaction between 5th March to 5th April

Interest accumulated for 20 days (from 1st March to 20th March)

[20 X 20000 X 3% X 12] / 365 = Rs.394.52

Interest accumulated for 16 days (from 21st March to 5th April on remaining Rs.10,000)

[16 X 10000 X 3% X 12] / 365 = Rs.157.80

Total accumulated interest = Rs.394.52 + Rs.157.80 = Rs.552.32

Scenario 2: Paid partially after the due date

  • Amount paid – Rs.10,000
  • Payment date – 26th March
  • Next billing cycle ends – 5th April
  • No transaction between 5th March to 5th April

Interest accumulated for 26 days (from 1st March to 26th March)

[26 X 20000 X 3% X 12] /365 = Rs.512.87

Interest accumulated for 10 days (from 27th March to 5Th April on remaining Rs.10,000)

[10 X 10000 X 3% X 12] / 365 = Rs.98.63

Total accumulated interest = Rs.512.87 + Rs.98.63 = Rs.611.50

Scenario 3: Paid partially after the due date and made successive transactions

  • Amount paid – Rs.10,000
  • Payment date – 26th March
  • Next billing cycle ends – 5th April
  • New transaction date – 10th March
  • New transaction amount – Rs.2000

 

Interest accumulated for 10 days (from 1st March to 10th march)

[10 X 20000 x 3% X 12] / 365 = Rs.197.26

Interest accumulated for 16 days (from 11th March to 26th March on Rs.22,000)

[16 X 22000 X 3% X 12] / 365 = Rs.347.17

Interest accumulated in 10 days (from 27th March to 5th April on remaining Rs.12,000)

[10 X 12000 X 3% X 12] / 365 = Rs.118.35

Total accumulated interest = Rs.197.26 + Rs.347.17 + Rs.118.35 = Rs.662.78

 

Thus, from the above calculation, it is understandable that individuals should consider credit cards with attractive interest rates like the Bajaj Finserv RBL Bank SuperCard. Thus, in case of partial payments, borrowers can save on interest charges with such cards.

Also, this lender provides pre-approved offers to reduce the time taken for credit card application approval. Furthermore, other financial products like personal loans and business loans also come with these offers. Applicants can check their pre-approved offers by furnishing their names and mobile number.

Lastly, individuals should use a credit card wisely and spend within their repaying capacity. This way, they can repay the total payable amount before the due date and avoid credit card interest accrual completely.

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Shailendra Kumar
Shailendra Kumar is an experienced Financial Consultant and Tech Reviewer who has 6+ years of experience in the field of finance, business, and technology. He is very passionate to write about Finance, Business, Technology, Gadgets, Digital Marketing, Fashion, Lifestyle, etc.

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