GUIDESCREDIT CARDS
What Is a Credit Card Interest Rate and How It Works
5 MIN • 
LAST EDITED BY ANOOP MENON ON OCTOBER 28, 2025.
LAST EDITED BY ANOOP MENON ON OCTOBER 28, 2025.
GUIDES LAST EDITED BY ANOOP MENON ON OCTOBER 28, 2025.
A credit card interest rate is the cost of borrowing money on your credit card, charged when you don’t pay your total outstanding balance by the due date. In India, these rates typically range between 30% and 48% per annum, making them among the highest consumer finance charges.
Interest is what your card issuer charges for letting you carry forward an unpaid balance. If you pay your full bill each month, you won’t be charged any interest. But if you only make a partial payment, interest is added to the remaining amount and continues to accrue until cleared.
Credit card interest rates are usually higher than personal or home loan rates because credit cards are unsecured, meaning there’s no collateral involved.
A credit card interest rate is the cost of borrowing money on your credit card, charged when you don’t pay your full outstanding balance by the due date. This rate is usually expressed as an Annual Percentage Rate (APR), the yearly cost of borrowing that includes interest and certain fees.
In India, the monthly interest rate on credit cards generally ranges between 2.5% and 4%, translating to an APR of 30% – 48% per annum. The nominal APR represents the flat annual rate, while the effective interest rate accounts for monthly compounding, making the actual cost of borrowing higher.
Your cc interest rate can vary depending on factors such as your card type, credit score, repayment history, and even the bank’s internal risk assessment. For example, SBI and HDFC Bank may charge around 3.35% per month, while Axis Bank or ICICI Bank cards may range between 3% – 3.6% monthly.
Interest is usually compounded daily or monthly, which means the longer you carry an unpaid balance, the more interest you accrue. This is also why credit card interest rates in India are typically higher than other loans, because cards are unsecured credit.
If you’re wondering how to calculate credit card interest, why the rates are so high, or how to avoid paying credit card interest altogether, we’ll break that down in the next section.
The general formula to calculate interest on credit card is:
For example, if you have an outstanding balance of Rs. 10,000 on your card, with an APR of 36%, and you pay it after 30 days, the interest will be:
Interest = (30 x 10,000 x 0.03 x 12) / 365 = Rs. 295
You can also estimate the potential interest cost associated with maintaining a balance on your credit card through Fi's Credit Card Interest Rate Calculator. Fi calculator serves as an informative tool to help you make well-informed decisions.
You’re charged credit card interest when you don’t repay your total outstanding amount within the interest-free period, usually 20 – 25 days after the billing cycle ends. Once that period passes, interest starts accruing on the outstanding balance until it’s cleared.
Here are the main scenarios where you’ll be charged interest:
💳 1. Carrying Forward an Unpaid Balance
If you don’t pay your total due amount by the due date, the remaining balance is carried forward to the next billing cycle. Interest is then charged daily on that unpaid balance.
Example:
If your billing cycle ends on 25th July and your payment due date is 15th August, paying after that date means interest will start applying from 16th August until you clear the dues.
🏧 2. Cash Withdrawals (No Grace Period)
Interest on credit card cash withdrawals applies immediately, there’s no interest-free period. You’ll also be charged a cash advance fee (usually 2.5%–3% of the amount withdrawn).
Example:
Withdrawing ₹5,000 from your credit card on the 10th will start accruing interest from the same day, until you repay it in full.
🕒 3. Partial or Late Payments
If you only pay the minimum amount due or pay after the due date, interest is charged on the entire outstanding balance, not just the unpaid portion.
Example:
If your total due is ₹25,000 and you pay only ₹5,000 by the due date, interest will apply to the remaining ₹20,000 and any new purchases made after that.
💰 4. EMIs on Credit Card Purchases
When you convert large purchases into EMIs, interest is pre-determined and charged as part of your monthly instalment. The rate typically ranges from 13% – 18% per annum, depending on your card and issuer.
Example:
A ₹30,000 purchase converted into a 6-month EMI at 15% annual interest will include a small finance charge each month until the full amount is repaid.
In essence, you get charged interest on a credit card whenever you:
To avoid these charges, always pay your full statement balance within the due date, and avoid cash advances whenever possible.
There are some ways to reduce or avoid paying interest on your credit card balances, such as:
Not all credit card interest rates are the same. Depending on how you use your card, whether for purchases, cash withdrawals, or balance transfers, different rates may apply. Understanding these can help you use your card more smartly and avoid unnecessary charges.
Here are the main types of credit card interest rates in India:
💳 1. Purchase Interest Rate
The purchase interest rate (also known as the retail interest rate) applies when you don’t pay your total outstanding balance by the due date.
It’s charged on everyday transactions like shopping, dining, or travel spends that remain unpaid after the interest-free period (typically 20–25 days).
Example: If your statement balance is ₹25,000 and you only pay ₹10,000, the remaining ₹15,000 starts accruing interest until it’s cleared.
🏧 2. Cash Advance Interest Rate
A cash advance interest rate applies when you withdraw cash using your credit card.
Unlike regular purchases, there’s no grace period, interest begins immediately from the day of withdrawal.
Most banks in India charge between 2.5% and 3.5% per month (30% – 42% per annum) on cash advances, plus a one-time cash advance fee.
Example: Withdrawing ₹10,000 from your credit card could cost ₹250 – ₹350 upfront, plus daily interest until repayment.
🔁 3. Balance Transfer Interest Rate
A balance transfer interest rate applies when you move your outstanding balance from one credit card to another, usually to take advantage of a lower rate or promotional offer.
Some banks offer 0% – 1% balance transfer interest for the first few months to help you manage debt.
After the promotional period, standard rates (around 3%–4% per month) resume if the transferred amount remains unpaid.
🎁 4. Promotional or Introductory Rate
This is a special low or zero-interest rate offered by banks for a limited time, often for new customers or specific purchases.
For example, a bank might offer 0% interest for 90 days on new purchases or EMIs when you first activate your card.
Once the promotional period ends, standard purchase or cash advance rates apply.
Ever wondered why credit card interest rates are higher than most other loans? It comes down to how credit cards work and the risk banks take when offering them.
Here’s why:
1. Credit Cards Are Unsecured Loans
Unlike home or auto loans, credit cards are unsecured, meaning there’s no collateral involved. Because lenders can’t recover money from an asset if you default, they offset the higher risk with a higher APR (Annual Percentage Rate).
2. Rewards, Benefits & Fraud Protection Add to the Cost
Credit cards offer cash back, reward points, and travel benefits, all of which are funded partly through the interest and fees charged. Additionally, banks invest heavily in fraud protection systems and payment networks, which increases operational costs that are reflected in the cc interest rate.
3. Compounding Makes Interest Grow Faster
Most credit card interest in India is compounded daily or monthly, meaning you pay interest not just on the original amount but also on previously accumulated interest. This compounding effect significantly raises the effective interest rate over time.
4. India’s Credit Card Interest Rates Are Among the Highest
As of 2025, the average credit card APR in India ranges between 36% and 42% annually, among the highest globally. (Source: RBI Data)
Following the government's consumer-friendly move to maintain the current 6.50% rate amid rising retail inflation, many banks have kept credit card finance charges or interest rates on hold.
Here is a compilation of interest rates or finance fees imposed by central public and private banks for credit card transactions.
Disclaimer : Rates on credit cards are accurate as of August 17, 2023.
Credit cards are convenient financial tools, but they often charge interest on unpaid balances. The amount you pay in credit card interest depends on three key factors: your Annual Percentage Rate (APR), your outstanding balance, and the number of days that balance remains unpaid.
To avoid or reduce these charges:
Ultimately, credit card interest rates can significantly affect your finances if not managed wisely. By understanding how interest is calculated, when it applies, and how to avoid it, you can save thousands of rupees every year, while building a strong credit profile.
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The monthly interest rate on a credit card in India ranges from 1.2% to 3.99%, depending on the card and the bank
Cash withdrawal interest rates on credit cards are the same as finance charges on outstanding amounts, ranging from 2% to 4% per month, depending on the card applied for.
Credit card interest is charged on unpaid balances and cash withdrawals. Pay your bill in full and on time, and avoid cash advances to save interest.
Credit card interest rate is the APR you pay for borrowing money from your issuer. It's calculated based on the method used by your issuer, such as the average daily balance, which uses your daily balance during the billing cycle.
The interest rate for credit card cash withdrawals is the fee charged by your credit card issuer for borrowing cash. This fee is typically high and can reach 3.5% per month.
A good credit card interest rate in India is typically around 30%–36% per annum (2.5%–3% monthly), lower rates are considered better.
You can calculate credit card interest using the formula: (Outstanding balance × daily interest rate × number of days unpaid).
Yes , a higher credit score often helps you get lower credit card interest rates and better credit offers.
If you miss a credit card payment, you’ll be charged interest on the full outstanding amount plus a late payment fee until it’s cleared.
