How credit card interest works
Credit card interest uses a daily periodic rate — your APR divided by 365. On the statement date, the bank adds up each day's interest on the unpaid balance and bills it as interest charges. Two details that surprise people:
- No grace period when you carry a balance — new purchases start earning interest from the transaction date, not from the statement date.
- Retroactive interest — some banks charge interest from the transaction date on the whole statement balance if you don't pay in full, even if you pay 99% of it.
Example: ₹30,000 unpaid at 42% p.a. for 20 days = about ₹690 in interest. Carry it for a year and it becomes roughly ₹12,600 — the balance grows by almost half its original size in 3 years.
When you DON'T pay interest
- Pay the full statement balance by the due date → zero interest, always.
- Most EMI conversions carry a fixed 12–18% p.a. instead of revolving 42% — much cheaper for big purchases.
- Cash advances always charge interest from day one (plus a fee) — never do this unless it's an emergency.
Frequently Asked Questions
A>Outstanding balance × (APR ÷ 365) × number of days, compounded monthly. Most Indian banks charge 3.5–4% per month (42–48% p.a.).
A>Yes — interest is charged on everything not paid in full. The minimum only avoids late fees and keeps the account current.
A>Annual Percentage Rate — the yearly interest rate on your card, expressed including most fees. Your daily rate = APR ÷ 365.
A>For personal use, no — credit card interest is not tax-deductible in India. (Business card interest can sometimes be claimed as a business expense; see our business expenses guide.)
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