Interest Rate on a Credit Card - Card Delta

Interest Rate on a Credit Card

If you pay your credit card bills on time and in full on a monthly basis, you do not need to pay any interest on the money spent on your purchases. The credit card company allows you to use their money that month 'for free' if you repay them in time at the end of the monthly billing cycle. However, if you make only a partial payment, the issuer will charge interest on the remaining outstanding amount - or balance - that will be carried over to the next month's bill.

For instance, if you make purchases worth Rs. 20,000, and you pay the amount in full when you receive your credit card bill at the end of the month, you will not incur any charges on using the issuer's money on credit. However, if you pay only, say, Rs. 12,000, the remaining Rs. 8000 will be added to the next month's bill and you will be charged interest on it. Some credit card companies may charge interest for the total Rs. 20,000 as you have paid the minimum due. You need to read the fine print of minimum due payment and interest charges carefully before getting your credit card. 

Late Payments on A Credit Card & Your Credit Score

Some people do not pay their bill every month and make a full payment at the end of a few months, thinking it will not affect their credit score. This is not true. Every delayed or partial payment affects your credit score and makes it difficult to qualify for loans or new credit cards. Suppose you had a medical emergency in the family and had unexpected hospital expenses. Faced with a temporary shortage of funds, you might think it is alright to make late payments for a few months until you can make a full payment again. You might be confident that your previous good track record will excuse a few delayed payments.

This is not a correct assumption. Making a late or partial payment is probably the worst thing you could do for your credit score. Your repayment history forms up to 30% of your credit score and is the single most important factor in making up your score. Credit rating agencies record every late or partial payment in your credit report and any such marking has a substantial negative impact on your score. It is therefore important to make sure that you try and pay off your monthly credit card bills in full and on time to avoid doing any long-term damage to your credit health.

Minimum Due Amount on Credit Cards

Payment due date is the date that your monthly payment is due. Any delay in payment beyond this date can cause the company to charge a late fee, report a late payment to the credit bureau, or even consider the account as delinquent. It is, therefore, important to ensure that you make your payment before the payment due date. There are several online tools that can send you reminders to make your payments on time. In case you are unable to make full payment on time, you can pay the minimum due to avoid any penalty for late payment.

The minimum payment due is the smallest amount you can pay before your payment due date and still keep to the legal terms of your card agreement. It is vital to make at least this minimum payment, or there is a chance that the credit card company can consider it a delinquent account, which has serious consequences for your credit history. The balance on the credit card will be carried forward to next month with interest. In general, most credit card companies keep the minimum due as 5% of your outstanding balance.

For example, you have made purchases for Rs. 10,000 in a month and your credit card bill is generated. You will now have a minimum due of Rs. 500 which needs to be paid to avoid any penalty.
Though the minimum amount due can provide you temporary relief, it is not recommended to pay a minimum due amount every month. The outstanding gets carried forward each month with interest and becomes a debt burden over time. Hence, it’s vital to pay off the credit card bill in full.