Be aware of credit card loan interest rates
When you avail of a credit card and spend using it, the process is actually a loan that the credit card company gave you. What naturally follows is that you pay an interest on this loan.
The credit card loan interest rate – also called a ‘finance charge’ – may vary from bank to bank and from one credit card company to another. It is always good to get to know these rates – and how and why some special rates or charges may kick in – before you start using a credit card.
If you have chosen a credit card from among the best credit cards in India you will notice that the credit card loan interest rate is basically an Annual Percentage Rate (APR).
This means that the overall rate will be for a whole year, but when you get your statements each month you will notice that the monthly percentage rate (MPR) has been applied to transactions.
This APR and MPR vary from one bank to another and even from one card of a bank’s bouquet of offerings to another of the same bank.
So, get to know your card and what credit card loan interest rate applies specifically to your card.
Here is a thumb rule on how you get to know the breakdown of the interest rate you are subjected to with the best credit cards in India. This is a bit of convoluted arithmetic, though not too complicated. It says this will be equal to the Number of Days (counted from the date of transaction) Multiplied by the Outstanding amount, Multiplied by the Interest Rate Per Month, Multiplied by 12 (months), and All divided by 365.
There are just two variables here:
- Number of Days
- Outstanding Amount
The credit card loan interest rate is fixed, but varies from bank to bank and from card to card, and can also be changed by the bank, either conforming to a notification from the RBI, or because of market conditions. These are generally preceded by a notification by the best credit cards in India.
For HDFC Bank (these figures may have changed) the MPR is 3.40%, while the APR is 40.80%. As expected, here APR is 12 times MPR.
For ICICI bank, the MPR varies from 2.49% to 3.67% and the APR, which differs from one card to another, is between 29.88% and 44%.
However, for HSBC this is as per the discretion of the bank.
For Yes Bank, you find the MPR is a mere 1.2% to 2.4%, with the corresponding APRs being between 14.40% and 28.8%.
However, before you jump at the data, do check out other options as well for the best credit cards in India. For example, there is the Bajaj Finserv RBL Bank SuperCard, where the MPR is up to 3.99% for all types of RBL Bank Credit Cards, but if you go within and study the benefits involved, it turns out to be a veritable treasure house. It is free, like many other cards on the market, but you also get effortless EMI conversion, emergency advance at a mere 1.16% pm rate and no processing fee, ATM cash withdrawal with no interest, the Bajaj Finserv privilege, Instant approval of the Credit Card as well as it being the Best rewards Credit card with strong security and huge annual savings.
You should also be aware of public notifications through which the ministry of finance and/or the RBI may issue directives regarding the change in credit card loan interest rate that may kick in. These will be easily available in the business pages of any newspaper. So, even if you have missed the RBI guidelines – and not everybody would be eager to constantly follow the RBI guidelines – general news headlines will provide sufficient information on the best credit cards in India.
The changes are generally in basis points (1 basis point is equal to 1/100th of 1%), so the difference might not show up to be too much, unless you are holding a card with a massive limit and you are a big spender as well. But it is always good to be informed.
With these basic ideas, you will be ready to use your credit card to your advantage.