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Credit card usage increased by 27% YoY in India between 2018 and 2019. Although debit cards can be sufficient for individuals looking for digital payment tools, Credit cards are associated with extensive savings regime through reward points and bonuses.

Further, they help increase the purchasing power of the respective user as well.Credit cards also increase the CIBIL score provided all credit card dues have been paid on time. Timely repayment also ensures no interest liability on cardholders, ensuring no unnecessary financial burden. Knowing what is credit card interest rate and how you can avoid them through timely bill payments will help you maximise benefits through such cards.

What is credit card interest rate and when is it levied?

As credit cards act as debt tools wherein cardholders borrow funds to meet their expenses and repay the same at a later date, interest is levied if repayments are not made on time, within one billing cycle.

Credit card billing cycle usually lasts for at least 45 days including the grace period. Any purchases made in a particular billing cycle have to be repaid in the following month, during which no additional charges are levied on cardholders.

Repayment post the billing cycle (inclusive of the grace period) attracts penalty charges in the form of interest rates compounded every month. Annual percentage rate (APR) reflects the total interest rate levied on an unpaid amount if you don’t repay your credit card debt on time.

How is APR calculated?

Upon knowing what is credit card interest rate, it is imperative to understand how the annual percentage rate is calculated on total due amount. Things you must know about credit card interest rate calculation and APR include the following parameters –

  1. Daily periodic rate – This represents the interest rate levied on all outstanding credit card bills on a daily basis. For example, for dues amounting to Rs.100 on a credit card which has a DPR of 0.07%, Rs.0.70 would be accrued as interest every day on the outstanding balance.

Multiplying the daily periodic rate with 365 reflects the annual interest on the unpaid credit which the user is liable to pay.

2. Average daily balance – ADB represents the amount spent on purchases via credit card daily, calculated by adding the total value of transactions processed through such cards, divided by the number of days in a month.

In case of any discrepancy in the interest charges levied on outstanding bills on a credit card, you can contact the credit card customer care number to immediately address the same. Several financial institutions such as Bajaj Finserv maintain a toll-free customer care portal to benefit all Bajaj Finserv RBL Bank SuperCard holders in case of any errors.

Such offers reduce the time taken for approval of credit cards, allowing individuals to enjoy their benefits with ease. However, before using your card extensively, keep in mind what is credit card interest rate levied in case of any missed payments to avoid accumulating debt.

Timely repayment can reduce such interest liabilities of individuals significantly, ensuring effective usage of availed credit cards through higher spending capacity, and extensive reward points accrued upon each transaction. It also generates a positive effect on the credit score of an individual, as payment of all bills on time establish cardholders as credible borrowers to respective financial institutions.