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What is Credit Card Interest, and How is it Calculated?

What is Credit Card Interest, and How is it Calculated?

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Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.

Every credit card offers you an interest-free period, which ranges between 20-50 days, in which you can spend as much as you want as long as you make a full payment within the interest-free period. Even if you make a part of the payment or a minimum payment, there will be an interest charge on your credit card balance. This interest piles up and can eventually can end up being a debt trap.

What is Credit Card Interest?

A credit card comes with an interest charge based on your credit rating and payment history. If you have a few of them, you may notice a variation in the interest rates offered by different credit card companies.

The interest in two kinds:

  • APR – Annual Percentage Rate – This is the standard rate of interest charged by the credit card for the whole year
  • MPR - Monthly Percentage Rate – This is applied to your monthly transactions

How To Calculate Interest Charge On Credit Card?

Interest charge on a credit card is applicable under a few conditions. Remember, if you make a full payment each month before your billing date, there is NO interest charged by the bank/financial institution. Interest is only charged if:

  • You have made a minimum or partial payment
  • If you haven't made any payment
  • If you pay less than the Minimum Amount Due
  • If you withdraw cash from your credit card
  • If you take a credit card loan
  • If there are any carry-forward outstanding balances

How To Calculate Credit Card Interest? 

So, let's say your credit card offers you a 50-day interest-free period, and the billing date is on the 5th of August. This means from the 6th of August till the 24th of September will be interest-free. 

Let’s say you bought an air-conditioner on the 6th of august, you enjoy an interest-free period of 50 days, and if you pay for it before the 24th of September, you don't have to pay a single Rupee as interest.

Now, if you shop online during a sale on the 24th of august, you won't get the additional 50 days of the interest-free period. The period reduces to 30 days, considering the billing cycle is over on the 24th of September. So, you must pay in full for that online shopping before the 24th of September to avoid an interest charge on your credit card.

Here is the Formula to Calculate Interest Charges on a Credit Card:

(Number of days counted from the date of transaction x outstanding amount x Interest rate per month x 12 months) /365

You must also understand that the interest-free period becomes null and void if you have balances carried forward to the next billing cycle or if you withdraw cash.


This is how simple it is to calculate the interest charge on a credit card. So, shop smartly and regularly pay to avoid this extra interest charge on your credit card outstanding!

On Fi Money, your credit card comes with customisable reminders that tell you when your bill is due or when you’re crossing a spend limit. That’s not all, you also get up to 5X reward points on your spends in the form of Fi-Coins which you can redeem for an exclusive catalgoue of goodies.

Frequently asked questions

How do I calculate monthly credit card interest?

The monthly credit card interest is charged based on the MPR for the number of days that the amount has been used.

What is the formula to calculate monthly interest?

The formula to calculate the interest rate is as follows: (No. of days counted from the transaction date x Outstanding Amount x Interest rate per month x 12 months)/365.

What is 24% APR on a credit card?

A 24% APR on a credit card means that the interest you're charged over 12 months is roughly 24% of your balance. For example, if the APR is 24% and you have ₹10,000 balance for a year, you would owe around ₹2,360 interest.

How is a credit card charge calculated?

The credit card charge is calculated based on the APR, computing the charge for 12 months based on the outstanding for the whole year.

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