Credit Cards are an indispensable part of people’s lives. It is easy to use. It also offers several advantages to the modern consumer, from financial flexibility to lifestyle-enabling rewards. They are excellent tools that let you finance your out-of-pocket expenses without the initial cost burden. However, to enjoy the various benefits of a Credit Card, you need to understand how the interest payments of this card work.
About Credit Card interest rates
The Credit Card interest rate, also known as the finance charge, is the rate the Credit Card companies charge on the sum you borrow. It varies across banks and depends on the Credit Card you choose. This rate is usually calculated as the Annual Percentage Rate, which is calculated for the entire year. When banks decide the interest on your monthly transactions, the monthly percentage rate is applicable.
Factors affecting Credit Card interest rates
Various factors influence Credit Card interest rates:
- Type of card
Interest rates varies depending on the Credit Card you pick. Some cards may have an introductory APR, which is lower than the ongoing APR. Meanwhile, some cards may have a variable APR that changes in the long run. Some Credit Cards could also have a fixed APR.
- Your creditworthiness
Credit Card companies usually utilise several factors to ascertain your creditworthiness. These include factors like income, credit history, and more. They use this data to understand your risk level and decide the APR to offer.
- Rewards
Some Credit Cards offer rewards for paying bills on time or shopping, which may lower costs.
- Credit score falls
If your credit score decreases, your Credit Card issuer may see you as a credit risk. Consequently, they might increase the Credit Card interest rate.
When is the interest applicable?
The interest is applicable only in the following instances:
- When you cannot pay the outstanding dues on the Credit Card bill by the last date of payment.
- When you use your Credit Card to withdraw cash from the ATM.
- When you repay less than the minimum amount due on your Credit Cards.
- When you pay only the minimum amount due on your Credit Card for that particular month.
Tips to avoid interest
If you want to avoid paying interest on your Credit Card, you can use the following steps:
- Pay your Credit Card bill entirely and within the due date.
- If paying the entire bill is impossible, pay at least the minimum amount due.
Conclusion
Understanding Credit Card interest rates is crucial when using them and making sound financial decisions. Knowing about the interest rate and the factors that influence it can enable you to make an informed choice when opting for a Credit Card. It also helps manage your card carefully while taking advantage of its various benefits and rewards.
