credit card: ET Explainer: How to avoid falling into a credit card trap

Bank card issuers cost excessive rates of interest of as much as 42% a 12 months on all transactions together with unpaid EMI instalments if any cardholder fails to pay the excellent invoice quantity in full. To grasp how unforgiving the bank card curiosity construction is, contemplate the case of A G, a veteran banker himself, who bought a bank card invoice of Rs 1,51,460 within the month of April 2023. By oversight, he paid Rs 1,51,400 earlier than the due date, Rs 60 wanting the whole invoice. To his utter shock, he was notified even earlier than the subsequent billing cycle {that a} monetary cost of Rs 6,349 was levied to him – for no-payment of merely Rs 60! It was a distinct matter that being a banker, he managed to get the cost reversed. However, for a daily bank card holder, warning needs to be the key phrase.

This is an ET explainer on bank card rate of interest guidelines and methods to keep away from falling into the bank card entice.

How do bank cards work?
Bank cards can be utilized to pay payments and for buying each on-line and offline supplied the whole fee is inside the credit score restrict supplied by the issuer. Bank card issuers provide interest-free credit score durations starting from 20 to 50 days. It’s sometimes the interval between the date of your buy and the subsequent fee due date.

When is the rate of interest charged on bank card dues?
If a cardholder fails to pay the total excellent dues inside the due date, it attracts each penalty and curiosity on the excellent dues. All of the recent transactions entice curiosity, often known as finance cost, from the date of buy until all of the earlier dues are settled. The identical with any excellent EMIs.

If the shopper skips fee or pays lower than the minimal stability earlier than the due date, the issuer begins gathering curiosity on the whole quantity due from the date of transactions.

If any buyer withdraws money from an ATM utilizing a bank card, it additionally attracts finance expenses.Bank card rate of interest varies from lender to lender and primarily based on the kind of card one holds.Does making the minimal fee save clients from paying finance expenses?
No, even when a cardholder pays the minimal quantity due, which is often 5% of the whole due, curiosity is charged on the remaining quantity and on all the brand new transactions from the date of buy.

When do clients lose the grace interval profit?
A cardholder will lose the advantage of interest-free credit score if he/she doesn’t pay the excellent stability in full. After that, all new transactions entice curiosity from the date of buy.

What occurs to the credit score rating or credit score bureau report in case of non-payment of excellent dues?
If a card member fails to pay the minimal quantity due said within the month-to-month invoice, it’s thought of as default and negatively impacts the credit score rating.

How can one keep away from falling into the entice?
Most often, the issuer firm calculates curiosity each day and due to this fact clients will face the impact of compounding will increase. So, it is higher to lock the seat belt earlier than each buy and be cautious that the excellent invoice mustn’t exceed one’s month-to-month paying capability. It’s additionally necessary to be conscious of the due date.