Understanding Credit Card Interest in India
How Credit Card Interest is Calculated
Credit card interest is charged on the Average Daily Balance (ADB) method. If you don't pay the full statement amount by the due date, interest is charged from the original purchase date — not from the due date. This means even a partial payment doesn't save you from interest on the full balance.
Daily Interest Rate = Annual Rate ÷ 365
Interest = Outstanding × Daily Rate × Number of Days
The Minimum Payment Trap
If your balance is ₹50,000 at 36% p.a. and you only pay the minimum (5% = ₹2,500/month), it would take over 3 years to clear the debt and you'd pay ₹30,000+ in interest — more than half the original balance. Always pay more than the minimum, ideally the full amount.
Credit Card Charges to Know
Late Payment Fee: ₹100–₹1,300 depending on outstanding amount. Over-limit Fee: ~2.5% of exceeded amount. Cash Advance Fee: 2.5–3.5% + interest from Day 1 (no grace period). Foreign Transaction Fee: 1.5–3.5% on international purchases.
Frequently Asked Questions
What is the minimum payment on a credit card?
The minimum payment is typically 5% of the outstanding balance or ₹200, whichever is higher. Paying only the minimum keeps you debt-free on paper but results in massive interest charges over time. Always aim to pay the full statement balance.
What happens if I miss a credit card payment?
Missing a payment triggers late payment fees (up to ₹1,300), the interest-free grace period is forfeited, interest accrues from the purchase date, and your CIBIL score drops. Consecutive missed payments can also result in card blocking.
Is converting outstanding to EMI a good idea?
Credit card EMI conversion typically charges 12–24% p.a. — much lower than the 36–48% revolving interest. If you can't pay the full outstanding immediately, converting to EMI is almost always better than letting interest compound at the revolving rate.
Does paying minimum due protect CIBIL score?
Paying the minimum due protects you from late payment marks on your CIBIL report. However, having a high credit utilization ratio (balance close to limit) still negatively impacts your score. Pay off as much as possible, not just the minimum.