What are Credit Card Interest Rates

Understanding Credit Card Interest Rates

Credit Card Interest

Credit cards are an easy and effective tool that make financial transactions simple and provide quick access to money. However, before you get a credit card, knowing the credit card interest rates that come with it is very important. With this blog, you can learn more about these rates, and why they matter.

What Are Credit Card Interest Rates?

A credit card interest rate is the cost of borrowing money from the company issuing the card. The credit card EMI interest rate established by the credit card provider is applied only when you don't pay the bill by the due date.

An annual percentage rate (APR) is the measure used to indicate the credit card interest rate. This percentage expresses the yearly cost of borrowing on your credit card. It contains any relevant fees or charges levied by the credit card company and the interest rate applied to the outstanding amount.

How Do Credit Card Interest Rates Work?

Credit cards provide you access to a certain amount of credit that is called your credit card limit. However, there is a fee associated with this debt, i.e., the interest.

If you don't make a payment by the due date on your unpaid amount on your free credit card account, interest will start accumulating. The outstanding balance is determined daily, and the interest is determined using the average daily balance (ADB) method.

You must pay the Minimum Amount by the due date to avoid paying interest charges Also, interest on credit card balances is usually compounded in India.

Must Read: Paying Secured Credit Card Dues On Time

How Is Credit Card Interest Rate Calculated?

The policies of the credit card issuer, the Reserve Bank of India standards, and your creditworthiness are a few factors that affect credit card interest rates. The cost of borrowing on a yearly basis is expressed by the credit card EMI interest rate, which is stated as an annual percentage rate (APR). However, the credit card interest is usually determined on a monthly basis.

1. Calculate The Average Daily Balance

The average daily balance is calculated by dividing the total balance by the number of days in the billing cycle. You can also use a credit card interest calculator.

2. Add The Daily Interest Rate To The Average Daily Balance To Get The Total

The daily credit card interest rate is derived by dividing the annual percentage rate (APR) by the 365 days. For example, the daily Kotak credit card interest rate would be around 0.0493% (18% x 365) if your APR was 18%. The daily interest charge is calculated by multiplying this rate by the average daily balance.

3. Add Up The Daily Interest Costs

The total credit card interest charged for that period is calculated by adding the daily interest costs for each day of the billing cycle.

Types Of Credit Card Interest Rates

To make wise financial decisions, it is essential to understand all the different types of credit card interest rates. Let's explore the three most common credit card interest rate types.

Fixed Interest Rates

Fixed interest rates on credit cards don't change over a certain time period. This means that regardless of changes in the market or the state of the economy. If you use a Kotak811 credit card, the Kotak811 credit card EMI interest rate, for instance, which will be charged on outstanding debt, remains fixed.

Variable Interest Rates

Variable Interest Rates fluctuate and are dependent on the market and benchmark interest rates. These rates frequently change in reaction to adjustments made to the credit card provider or general economic policies.

Promotional Interest Rates

Promotional interest rates are seasonal, limited-time deals credit card companies offer to customers every now and then. These rates are often given for a limited time period and are lower than the regular interest rates.

Must Read: Why Is Breaking Fixed Deposit Not A Wise Decision

When is the Interest Rate Charged on Credit Cards?

Billing cycles credit cards usually last for about 30 days. If you incur costs during this time, you have the chance to benefit from the grace period, during which credit card interest is not charged. The grace period varies from card to card and only applies if the entire debt is paid before the due date shown on your statement.

The credit card company will start charging interest on the remaining unpaid debt. This unpaid debt is carried over to the subsequent billing cycle and is subject to interest. Understanding the interest rate at this point is essential because it affects how much it will cost to use your credit card to carry a debt.

Factors That Affect Credit Card Interest Rates

You will be able to better navigate the credit card market and improve your finances by working on the following factors.

Credit Score

In India, credit scores are usually provided by credit bureaus such as CIBIL, Experian, Equifax, and CRIF High Mark. These scores are used by lenders to determine the risk involved in granting credit to customers.

Payment History

The term "payment history" describes a person's history of making on-time payments and adhering to their payment schedules. Regularly paying bills on time demonstrates sound money management and builds a good payment history.

Balance Transfer Rates and Fees

Transferring balances from one credit card to another with better terms might be an efficient way to manage credit card debt. It is essential to assess the rates and fees involved when thinking about a balance transfer because they influence the overall cost of debt.


It's always a good idea to understand how outstanding balances accumulate interest, and how credit card EMI interest rates work. Remember to use a credit card interest calculator to make your options clear. Once you’ve thoroughly grasped the concept of credit card interest rates, you can use your card effectively and for improving your finances over time.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.