Factors That Affect Credit Card Interest Rates
In many aspects of your financial transactions, you have surely discovered the idea of interest rates. You might be frustrated if the interest rate on your loan increases or happy if it decreases because the rate of interest refers to the price of borrowing. But have you ever wondered what variables affect the fluctuation of interest rates? Let’s examine the most common factors that affect credit card interest rates.
How are Interest Rates determined?
In India, the annual percentage rate, or APR, is used to calculate the interest rate on credit cards. It isn't the monthly rate of interest, but the rate of interest calculated over the entire year. But the monthly percentage rate, or MPR, will be used when figuring out interest for transactions that occur each month. Depending on the bank and the credit card you use, the APR and MPR can differ significantly. Therefore, it is important that, as you apply for a credit card, You enquire about the interest rate that will be applied to the card from the credit card company.
What Sorts Of Deals Attract Interest Charges?
The following situations are just a few examples of when credit card companies add interest to credit card transactions:
- When you don't make the overdue payments by the deadline.
- When your repayment is less than the minimum amount required.
- When you only make the bare minimum payment for the month.
- Whenever you make a cash advance using your credit card. Essentially, this means that you use the credit card to make an ATM withdrawal.
- When you carry over the unpaid balance from one month to the next the banks won't charge you interest if you pay the balance on your credit card before the due date.
The variables that affect your Credit Card interest rate
One of the most important aspects that credit card companies take into account when determining the credit card interest rate is your credit score. However, there are additional elements that influence the interest, which is detailed below:
Payment record
Your past repayment record reveals a lot about your creditworthiness and ability to pay back the debt. If the lender observes that you have been consistent with your repayments and that you have minimum or no unpaid debt, Your credit score will rise as a result, but also assist you in obtaining credit at a lower interest rate. But on the other hand, if you have fallen behind on your payments, because of the lower credit score, the interest charged on the credit card will be higher.
Your debt amount
This implies the debt you owe. Credit card issuers consider your credit limit and your usage when determining your credit card interest. A poor credit ratio will make it appear that you have made your payments on time. But, if your credit ratio is higher, be ready to pay a higher interest rate on your credit card. Besides these elements, the length of your credit history and the types of credit you have outstanding also have an impact on the interest rate.
Bottom Line:
When using a credit card, one of the most important considerations is the interest rate. Any missed bill payments could result in significant interest charges that the credit card holder would be responsible for paying in the subsequent billing cycle. Certain actions, like not paying the entire bill, cash advance facilities, etc. attract interest charges.
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