January 9, 2025
Credit cards are valuable when used wisely, but they do come with a range of interest rates and fees that can surprise new users. To help you make the most informed decisions, this post will break down credit card interest rates and fees so you can avoid unnecessary costs and stay in control of finances.
What are Credit Card Interest Rates?
Credit card interest rates are commonly referred to as the Annual Percentage Rate (APR). They represent the cost of borrowing money on your credit card if you don’t pay your full balance each month. Unlike a personal loan where interest rate is calculated at the start, credit card interest is only applied to any unpaid balances after the billing cycle ends.
Different transactions on your credit card like purchases, balance transfers and cash advances may have separate interest rates. The common range for APRs is between 18% and 48% annually, with some providers offering rates as low as 9% to qualified customers. But, the most common APR range hovers around 2.5% to 3.5% (monthly) for the majority of users.
Let’s say your total credit card dues are ₹12,000, but you only pay ₹6,000 on the due date. The remaining ₹6,000 will be carried forward, and interest will be charged on that amount. Additionally, any new purchases you make after this will also accrue interest – from the day of purchase, until you pay off the entire outstanding balance. This can lead to a higher overall cost if you don’t pay off your dues in full.
Types of Interest Rates
Credit cards often have multiple interest rates depending on how you use them:
Purchase APR: This is the most common interest rate applied to everyday purchases if you don’t pay your balance in full.
Cash Advance APR: Cash advance carry higher rates, often between 2.75% and 3.5% per monthly. It should also be noted that they do not come with a grace period.
Balance Transfer APR: Some cards offer low introductory rates for balance transfers. But, after the promotional period rates often revert to the standard APR.
Penalty APR: If you miss payments, the penalty APR comes into play. This is often the highest, going as high as 48% annually.
Credit Card Fees
In addition to interest rates, credit cards also come with a host of fees that can accumulate quickly. The following are the main ones:
Annual Fee: Some cards charge an annual fee just for the privilege of using them. These fees can range from Rs. 500 to Rs. 5,000 (based on the card’s benefits and rewards structure).
Late Payment Fee: If you miss the due date for a payment, you can incur a late payment fee. It’s around Rs.500 to Rs.1,200. The exact amount depends on your outstanding balance and the issuer’s policy.
Cash Advance Fee: Besides the high APR on cash advances, there’s usually a fee for withdrawing cash. This is around 2.5% to 3% of the amount advanced.
Over-limit Fee: Spending over your credit limit may result in additional fee – around Rs.500 to Rs. 1,000.
To successfully manage your credit card and avoid unexpected charges, it’s necessary to fully understand interest rates and fees. With responsible use, credit cards can help build your credit score, offer rewards, and make managing expenses more flexible. The strategic move is to consistently pay off your full balance and avoid accumulating debt. Always compare card offers, review the terms closely, and choose one that fits your financial needs to maximize benefits.
