Credit Card Interest Rate - Check How is EMI Calculated?
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When you get a credit card, it requires you to pay the minimum balance to avoid falling into debt. The downside of carrying a balance is that you will have to incur credit card interest rates. What is credit interest, these interest rates can put a significant financial burden on your shoulders. It is referred to as Annual Percentage Rate or APR. However, in most cases, your credit card interest compounds daily.

Sometimes, you will have to bear no interest charges on your credit balance. It happens when you have been offered a grace period or if your credit card has a 0% APR period.

Let us take a moment to understand what this interest is and how to calculate credit card EMI interest rate.

What are Credit Card Interest Rates?

It is a percentage of the balance amount, so do know how interest is charged on credit card by the issuing bank or financial institution. The interest applies when you choose to pay the minimum balance or miss your monthly payment amount in full. If you pay your credit card’s outstanding balance amount before the due date, there is no interest charged by the issuing bank. It is imperative to know how much the credit card interest rate is on your credit card before applying for one. It is worth noting that the rate of interest depends on your credit score. A higher credit score can get you a lower interest rate.

Here’s an overview of some of the credit cards offered by Kotak Mahindra Bank with their annual interest rates:

Credit Card Name Annual Interest Rate
Kotak White Credit Card 37%
Kotak Mojo Platinum Credit Card 42%
Kotak 811 #DreamDifferent Credit Card 35.88%
Kotak Bank Essentia Platinum Credit Card 42%
Kotak Bank Fortune Gold Credit Card 42%
Kotak Zen Signature Credit Card 41%
Kotak Bank Best Price Credit Card 41%
Kotak Bank League Platinum Credit Card 42.00%
Kotak Bank PVR Kotak Gold Credit Card 42.00%
Kotak Bank Delight Platinum Credit Card 42%

When is Interest Rate Charged on Credit Cards?

If you pay your total amount due (TAD) before the due date, no interest is charged on credit card transactions. However, interest applies in the following cases:

  • No Payment

Skipping a monthly credit card payment results in interest on the total amount due and new transactions until all previous dues are paid.

  • Minimum Amount Only

Paying only the minimum amount due incurs interest on the remaining balance and new transactions until the prior balance is settled.

  • Less than Minimum Amount Due

Paying less than the minimum amount due leads to finance charges on the entire outstanding amount and new transactions until the prior outstanding is cleared.

  • Cash Withdrawal

Cash advances also attract finance charges from the withdrawal date until the amount is fully repaid.

  • Carrying Forward Outstanding

Unsettled previous month dues lead to interest on the outstanding and new transactions until the prior dues are fully cleared.

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Transaction Amount (Rs.)
Transaction amount on 10 July 2023 5,000
Total Amount Due (TAD) on statement dated 15 July 2023 5,000
Minimum Amount Due (MAD) on statement dated 15 July 2023 250
Payment Due Date – 3 August 2023  
Transaction amount on 7 August 2023 1,000
Transaction amount on 10 August 2023 500
Interest charges on next statement (15 August 2023) at 3.00% MPR  
Interest on Rs.5,000 for 30 days (10 July to 10 August) 147.94
Interest on Rs.1,000 for 9 days (7 July to 15 August) 8.87
Interest on Rs.500 for 6 days (10 July to 15 August) 2.95

How are Credit Card Interest Rates Calculated?

You can calculate your credit card interest rate based on the following three steps and know what is the credit card interest rate for you:

A.) Convert Annual Percentage Rate (APR) to daily rate

Most credit card issuers compound interest daily, which means that your interest amount is added to your principal balance at the end of each day. So, you will need to convert your APR to a daily rate. You can do that by dividing your APR by 365 days.

Some credit card issues divide the APR by 360 days. However, it does not make much of a difference. The outcome will remain almost the same. The result that you get after diving your APR by 365 days is known as the periodic interest rate or daily periodic rate.

B.) Find out your average daily balance

This step is quite tedious as you will have to know every day’s balance throughout the entire billing cycle. Your credit card interest rates depend on the balance of each day. For instance, if your billing cycle is 20 days, you will need to know the exact balance for all 20 days. Start with the unpaid balance on your credit card statement. It is the amount carried over the previous month. Making purchase transactions increases the balance amount, and when you pay off your debt, it goes down. You can use the transaction information on your credit card statement to go through the billing period and jolt down each day’s balance amount. After writing down all the balances, add all your balances and divide by the number of days of your billing cycle. The produced result is called the average daily balance. Keep in mind that you will need to include balances from previous months. Also, make sure to exclude any payments made during your current billing cycle when you add current balances.

C.) Calculate Interest charges

After finding the average daily balance and daily rate, you will need to calculate your interest charges. You will need to multiply your average daily balance by the daily rate. After that, multiply the amount you receive by the number of days in your credit card billing cycle.

Your actual interest charge depends on whether your credit card issuer compounds interest daily or monthly. It means that your interest charge may be different than this amount. It is worth noting that compounding is a way of adding the accrued interest to the unpaid balance. Due to compounding, you end up paying more than your APR in interest.

Here is a table to have a clarity on how is interest calculated on a credit card:

Date of Transaction 1 April 2023
Amount (Rs.) 20,000
Date of Statement Generation 1 May 2023
Minimum Amount Due 5% of outstanding balance, thereby Rs. 1,000
Bill Due Date 26 May 2023
Monthly Credit Card Interest Rate 3%
Late Payment Fee  
Outstanding balance less than Rs.100 Nil
Between Rs.101 - Rs.500 Rs.100
Rs.501 - Rs.5,000 Rs.500
Rs.5,001 - Rs.10,000 Rs.600
Rs.10,001 – Rs.25,000 Rs.750
Rs.25,001 – Rs.50,000 Rs.900
Rs.50,001 and above Rs.1,000

What are the Factors Determining your Credit Card Interest Rates?

Several factors go into influencing credit card interest rates, such as:

Prime rates

The credit card interest rates are determined based on the prevailing interest rate or prime rate. It acts as a starting point for interest rates to be set on credit cards. It has a big impact on credit cards with variable APR, as it is subject to changes due to market conditions.

Credit history

Before assigning interest on your credit card, your issuing bank will consider your credit report and credit score. Your credit score indicates whether or not you are a creditworthy person. Having a higher credit score ensures lower interest and vice-versa.

Different APRs

The credit card interest rates calculation is referred to as APR - Annual Percentage Rate. A single credit card can have multiple APRs. For instance, there are different APRs applied on cash advances, credit card interest rate on purchases, balance transfers, and promotion rates. Some credit cards’ APRs change periodically, while others are fixed.

Promotional offers

You may have observed that some banks offer 0% interest for a specific after purchasing a credit card. So if you think about how these credit cards have interest, do know that the interest-free period can range between 6 months to 12 months. But, as and when the promotional period ends, the interest rates increase substantially.

Payment history

Another factor that influences your credit card EMI interest rate is the payment history. For instance, if you have interest on credit card EMI, you will have to pay the same. Otherwise it will go higher.

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How to Lower My Credit Card Interest Rate?

The best part about a credit card is that you have control over some of the factors that determine its interest rate. For instance, your credit score depends on how you manage your credits. Having a higher credit score can get you a lower interest rate. Similarly, a lower credit score leads to a higher credit card EMI interest rate.

Regardless of the credit cards’ APR, you can reduce your interest rate in the following ways:

  • Pay your credit card bill in full and on time to avoid interest charges.
  • Make sure to pay more than the required minimum payment if you are unable to make full payment.
  • To decrease your daily balance, try to make payments more than once a month.


So, now that you know what a credit card interest is, how to calculate it, and the factors influencing it, you can take measures to avail of a lower interest rate and enjoy credit card benefits freely.

What do you understand about the Credit Card Interest-free Period?

The credit card interest-free period refers to the duration during which you can make purchases using your credit card without incurring any interest charges. It typically ranges from 18 to 48 days. The interest-free period starts from the date of purchase and lasts until the payment due date. If you pay the total amount due by the due date, you won't be charged any interest. However, if you miss the payment due date, there will be a credit card interest rate after the due date, and you may be charged interest on your outstanding balance.

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Frequently Asked Questions

How is a credit card interest rate determined?

The credit card interest rate is based on various factors such as the individual's creditworthiness, the prime rate, market conditions, and the types of credit card being offered.

What is the average credit card interest rate?

The average credit card interest rate can vary depending on various factors such as the type of credit card, and the individual's creditworthiness. However, Kotak credit cards come with an interest rate of 2.49% per month or 29.88% per annum, this can be considered as a relatively nominal interest rate compared to some other credit cards in the market.

What is a variable interest rate?

A variable interest rate is an interest rate that can change over time based on certain factors, such as fluctuations in the market or changes in a reference rate.

It is different from a fixed interest rate, which remains constant throughout the credit period.

How can I lower my credit card interest rate?

To lower your credit card interest rate, consider transferring your balance to a card with a lower interest rate, improving your credit score, or exploring other credit card options with better credit card rates.

How can I avoid paying credit card interest?

To avoid paying credit card interest, you can pay your credit card balance in full and on time each month. 

By doing so, you won't carry a balance and won't accrue any interest charges. Additionally, choosing a credit card with a 0% introductory APR can also help you avoid interest for a certain period of time.

Why is it important to know my credit card's interest rate?

Understanding your credit card's interest rate is helpful for making smart financial decisions, as it influences borrowing costs and overall debt management.

Awareness helps avoid unnecessary charges and promotes financial stability.

Can I negotiate my credit card interest rate?

Yes, negotiating your credit card interest rate is possible with a good credit score and a decent credit behaviour.

Contact your issuer, express your financial situation, and request a lower rate, potentially saving money.

What is a variable interest rate on a credit card?

A variable interest rate fluctuates with market conditions, often tied to a benchmark rate. Monitor changes to plan effectively for potential adjustments.

How can I avoid paying credit card interest?

To avoid credit card interest, pay the full statement balance by the due date, ensuring timely payments within the grace period.

What happens if I only make the minimum payment on my credit card?

Making only the minimum payment incurs interest on the remaining balance, potentially leading to long-term debt accumulation.

What should I do if I have a high-interest rate on my credit card?

If facing a high-interest rate, negotiate for a lower rate, explore balance transfer options, and focus on paying the principal to reduce overall costs.

How do I compare credit card interest rates between different cards?

Compare credit card interest rates by examining APR, considering introductory offers, and evaluating terms, fees, and rewards for cost-effective credit usage.

How often should I review my credit card's interest rate and terms?

Reviewing your credit card's interest rate and terms frequently, especially during financial changes, to stay updated and make necessary adjustments to your financial strategy.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.