Understanding Credit Card Interest Rates

Meet Rahul, a young professional who just landed his first job. He’s looking forward to his independence and wants to make the most of it. He got his first credit card. A few questions pop into his mind – how much is the interest going to affect my finances? Is the interest rate on my credit card going to burden or benefit me?

Like Rahul, if you’re curious about credit card interest rates and their impact on your wallet, this is your moment. Let’s understand interest rates to ensure your credit card works for you, not against you.

Understanding Credit Card Interest Rates
 

• What is credit card interest rate?

When you use your credit card and don’t pay off the full balance until the due date, you carry the remaining balance to the next billing cycle. This outstanding amount accrues credit card interest. In simpler terms, it’s the fee you expend for borrowing money on your card.

The interest is calculated monthly at a rate called the Annual Percentage Rate (APR). The higher the APR, the more you will pay in interest.

• When is it calculated?

The credit card interest accrues if you maintain an outstanding balance or take a cash advance. This happens when you:

• Pay only the minimum amount due.
• Pay less than the total amount due.
• Don’t pay your credit card dues.
• Withdraw cash from an ATM using your credit card.

However, with IDFC FIRST Bank Credit Cards, you are not charged any interest for making ATM cash withdrawals for up to 48 days.

• How is credit card interest calculated?

Here’s the formula to calculate the credit card interest –

[Number of days since the transaction date X outstanding amount X annual credit card interest rate (APR)] / 365

This interest is calculated daily on your outstanding balance and compounded monthly.

• Interest-free period

You can avoid interest charges altogether by paying your statement balance in full by the due date. IDFC FIRST Bank allows an interest-free grace period of up to 48 days. A credit card grace period is the duration between your purchase date and the due date of the next billing cycle. If you repay your outstanding amount in full during the grace period i.e. before the due date, the card issuing bank doesn't charge you any interest.

Benefits of low interest rate credit cards
 

Now that we have understood what credit card interest rate  is and how it is calculated, let’s explore the reasons you should pick a card with a lower APR.

• Save more: Talk about the obvious. With a lower interest rate, you will have to pay less when carrying a balance over to the next month. This lets you save more for meeting your other financial goals.
• Manage debt effectively: Lower credit card interest rates > lower interest amount >> less outstanding balance >>> easy credit card payments.
• Improve credit score: Paying your bills on time and keeping your credit utilization low (ideally below 30%) are key factors in building a good credit score. Lower interest rates make it easier to achieve both, as you're less likely to fall into debt.
• Manage large purchases: Need a big-ticket item? If you need to make big purchases, like a new appliance or even a medical treatment, a lower interest rate on the card can help you spread the cost over time without feeling the pinch.
• Improves financial flexibility: Lower interest charges create a financial buffer, allowing you to handle unexpected expenses more easily.
• Emergency buffer: A low-interest credit card can come to your rescue in emergencies. If you need immediate funds for unexpected expenses, you can use the card and pay it off later.

By understanding these advantages and using your credit card responsibly, you can leverage lower credit card interest rates to manage your everyday expenses and even boost your savings in the long run.

Factors influencing your credit card interest rate
 

Several factors determine the interest rate you are offered, including:

• Credit score: This is the most important factor that determines your credit card interest rate. Got a high credit score? This means you are at a lower risk of defaulting, which translates into lower interest rates. But if your credit score is on the lower side, say below 500, you will be charged higher interest rates.
• Income: The higher your income, the less risky you appear to lenders, and the lower your interest rates will be.
• Employment status: Full-time employment and a stable job history can positively impact your creditworthiness and lower your interest rates.
• Existing debt:  If you have existing debt, it can be a sign of financial stress. This could lead to higher credit card interest rates.
• Payment history: Making timely payments on your credit cards and other bills can improve your credit score and help you qualify for lower credit card interest rates.

Finding your existing credit card interest rate
 

Knowing your existing interest rate will help you calculate the true cost of carrying a balance. Here are ways you can check your credit card interest rate.

• Credit card agreement: When you first received your credit card, you would have received a credit card agreement outlining the terms and conditions of your account. This agreement will include your interest rate as well as other important information, such as fees and grace periods.
• Credit card statement: Look for the ‘APR’ or ‘Interest Rate’ section on your monthly statement.
• Online banking: Your credit card issuer’s website or app would display your interest rate information.
• Customer service: If none of the above work, you can always contact your credit card issuer directly for clarification.

There may be different interest rates applied on different types of transactions, such as purchases, cash advances, and balance transfers. Knowing this will help you make better decisions about how you use your credit card and manage your finances responsibly.

Why IDFC FIRST Bank Credit Cards?
 

With IDFC FIRST Bank, you can get the best credit card interest rate, starting at just 0.75% per month. Their impressive range of cards can suit your lifestyle while delivering exciting rewards and benefits.

Here’s why IDFC FIRST Bank Credit Cards stand out –

• High reward rates: Earn up to 10X reward points on specific categories like online shopping, dining, and travel. Get rewarded for living your best life!
• No expiry on reward points: Unlike many other cards, your points don’t expire with IDFC FIRST Bank. You can conveniently redeem them, anytime, anywhere.
• Lifetime-free: Many of IDFC FIRST Bank Credit Cards have no joining or annual fees, which means you get to use this money to spend on things you love.
• Flexible redemption options: Redeem these points for travel, gift vouchers, or even directly at merchants; the choice is yours.
• Convenience of UPI: Get the freedom to opt for a virtual RuPay credit card liked to your IDFC FIRST Credit Card for seamless and more rewarding UPI transactions.
• Discounts on dining, entertainment, and shopping: Enjoy exclusive discounts at partner merchants across various categories. Save money on your everyday expenses and make your shopping experiences more enjoyable!
• Travel insurance: Get a complimentary travel insurance cover of USD 1200 with the FIRST Wealth Credit Card, which also provides coverage for trip cancellations, delays, and baggage loss.
• Personal accident cover: Some cards offer complimentary personal accident insurance up to ₹ 10 lakhs.
• Birthday bonus: Earn bonus reward points on your birthday with some cards.
• Complimentary railway/airport lounge access: Enjoy access to railway or airport lounges with select cards.

Swipe smarter with IDFC FIRST Bank and get low interest with big rewards.

Pay less, earn more with the best credit card interest rate
 

Managing your finances doesn’t have to be a chore! With a clear understanding of credit card interest rates and the right credit card, you can unlock a world of benefits and convenience. In this journey, IDFC FIRST Bank Credit Cards can be your partner in responsible spending, rewarding you while helping you build your financial future.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.