Credit cardholders can pay back the borrowed amount with a low-interest rate and save money by transferring balances. In addition, cardholders may transfer their outstanding credit card balances to other banks’ credit cards through this facility. Interest rates on credit cards, commonly known as finance charges, are the costs of borrowing money.
It differs from one credit card issuing financial institution to the next and between different credit cards from the same issuer. Before applying for one, you should know the credit card interest rates. Unlike other loans, credit card interest rates are largely unrelated to the borrower’s credit score or repayment ability. Every credit card has a predetermined finance charge, which is the same for all consumers.
When is the interest charged on credit cards?
You will be charged interest if you have an outstanding balance on your credit card such as RBL credit card or have taken a cash advance. The following situations can cause this:
- When you only pay the minimum amount
- When you pay a lesser amount than the total due
- When you withdraw cash from an ATM with your credit card
The next time you make a purchase, you will not be eligible for the interest-free period if you carry forward unpaid balances. Thus, new purchases will be subject to interest from the very first day. So, choosing a low-interest rate credit card is important.
Credit card interest-free period
An interest-free period on a credit card occurs between the end of the billing cycle and the payment due date. Users of credit cards are typically offered an interest-free period of 50 days. There is, however, no guarantee that all transactions will have the same interest-free period. Depending on the day of the transaction, the interest-free period may vary.
A statement period, which begins on the first day of the billing cycle, is subject to interest-free. The interest-free period ends about 15 to 25 days after your billing cycle. All the details of the outstanding balance at the end of the interest-free period, the date the statement was generated, all purchases made, and the due date when the interest-free period ends can be found in the credit card statement.
The billing cycle for the credit card lasts one month from the day it was generated. So while interest-free periods of 45 to 55 days may sound impressive, they represent the time available for credit cardholders to pay their dues and not that every purchase made with that credit card is interest-free during that time.
How to avoid paying credit card interest rates?
If you use your credit card carelessly, you are more likely to end up in debt, as it is the easiest way to do so. Getting out of debt is a difficult process that can cost you a lot of money. On the outstanding balance of a credit card, you will be charged credit card interest rates that fall between 36 and 48%.
The following are six ways to use your credit card wisely and reduce the interest you pay.
- Pay the outstanding credit card balance by the due date
- There is no interest-free period for new purchases
- Consider a balance transfer
- Convert to EMI
- Immediately deposit your cash withdrawals
- Do not use credit cards abroad
Calculation of the interest-free period on a credit card
Credit cards are one of the financial products that have revolutionized the world today. Individuals can use these plastic cards to borrow money from a credit line. Credit cards have evolved into a necessary commodity that everyone aspires to own. On the other hand, credit cards can be extremely harmful to a person’s financial situation if they are overused. Customers must make sure that their credit card bills are paid on time, without delays, or they may be charged high credit card interest rates.
Cardholders are also recommended to pay more than the minimum monthly due amount, as paying only the minimum will result in dues stacking up. Credit cards are preferred by those who seek risk-free payment solutions. Furthermore, banks would encourage people to use credit cards to pay for their purchases since they would receive a commission from the seller.
When it comes to the interest-free period, it might run anywhere from 45 to 55 days, depending on the firm and the credit card used. Individuals who do not pay the entire bill amount before the end of the interest-free period will be charged interest at 2% to 3% per month. Unfortunately, several people are unaware of how interest-free periods function, and as a result, they become defaulters.