Credit cards are useful financial products that can aid you during an emergency. They can be swiped at a physical point of sale or used to make online payments online or withdraw cash from an ATM. While it offers several benefits, a credit card bill needs to be fully repaid on time as it comes with a high interest charge on its usage. An online credit card interest rate calculator can help you determine the actual costs of using your credit card.

Know the Term – Credit Card Interest Rate

A credit card is inherently a loan product as you’re ‘borrowing’ to spend the money you do not have in your account. This is the opposite of a debit card in which you can only spend as per your account balance. The interest rate a credit card provider charges you for borrowing money is the credit card interest rate. Typically, it is indicated as an annual percentage rate (APR), also known as financing charges.

There is no fixed standard credit card interest rate. Depending on your usage, credit card providers apply varying interest rates. The borrowing limit is decided based on your annual income and card usage history. Different interest rates can apply for shopping, loans, and ATM cash withdrawals for the same card.

How to Calculate the Credit Card Interest Rate

The simplest way is using a credit card interest rate calculator. This free-to-use online tool instantly tells you the interest amount to be paid over your credit card spend. 

The formula used by a credit card interest charge calculator is:

Interest Amount = 

[(Total number of days x usage amount x monthly interest rate x 12 months)] ÷ 365 days

In this equation, the total number of days is counted from the transaction date, and the usage amount is actually the outstanding amount due. 

Let’s say you bought a pair of new sneakers on 1 January 2023 for ₹7000. Your credit card interest is 3% monthly, and the repayment period is 30 days. This means if you pay your card bill on 31 January 2023, your interest amount will be the following:

[(30 x 7000 x 0.03 x 12)] ÷ 365 = ₹207.12

Add the interest to the principal, and your total repayment obligation is ₹7,207.12.

Benefits of Using a Credit Card Interest Calculator

There are two key benefits of using a credit card interest calculator in India:

• Managing personal finances: The calculator gives you a clear picture of the principal and interest that you need to repay. It can also help you understand the EMI structure for larger purchases. This clarity will help you plan your monthly expenses.
• Comparing different cards: There are several cards in the market, each claiming to be the best. But by using a credit card interest rate calculator, you can identify the actual usage cost. After comparing interest rates and other terms, you can make informed buying decisions.

Frequently Asked Questions

Will the rate of interest for credit cards change frequently?

Yes, this is true. The interest rate for credit cards is regulated by the RBI and administered by the card issuer. This can change as a result of changes in the economy and changes in RBI rates. Other factors influencing the credit card interest rate include the cardholder's credit profile, annual income and/or usage and payment history. This is why it is recommended to review your credit card bill regularly, as you may miss out on the communication conveying these changes and end up paying a higher-than-usual amount.

Why is credit card interest so high?

A combination of factors makes credit card interest high in India. These include the following:

• Risk – A credit card is a form of loan, and the risk of the cardholder defaulting on the payment is factored in by the card issuer.
• Cost of issuance – The card issuer also considers the prorated costs of marketing, fraud prevention, KYC, and customer service and bakes it into the card interest rate.
• Method of calculation – Most card issuers use the average daily balance method to calculate interest. In contrast to methods such as reducing balance, this causes the interest rate to be high.