Ever thought why people always complain that their credit card company has charged more than they were supposed to pay or they did not inform or that a particular company is fraud, blah blahhhhhhhhhhhhh. Well it will continue but is it the fault of the Credit card Company who is issuing the card or of that person who does not bother to go through the terms and conditions? Well it is the fault of that person.

 

There are many people like you and me who do not know how the interest rate on credit card is charged and when we receive the statement, we are bemused and start criticizing the company of fraud whereas it is our fault. Well here is a procedure, which will help you to understand how interest on Credit Card is charged.

 

X made purchases on his credit card - a Fridge for Rs. 15,000 on 01 April 08 and Shopped Clothes worth Rs. 6000 on 15th April 08 - both at an interest rate of 3.2% per month. The table below highlights how the interest rate is calculated on these purchases:

 

Statement date 20th April 08

Amount outstanding Rs 21000

Due date 11th May 08

Payment made on the due date Rs 5000

Balance carried forward Rs 16000

Interest rate@3.2% p.m.

a) Interest on Rs 15000 for 41 days (From 01 April to 10 May) Rs 647.01

b) Interest on Rs 6000 for 26 days (from 15 April to 10 May) Rs 164.12

c) Interest on 16000 for 10 days (from 11 May to 20 May, the next due date) Rs 168.32

Total Interest charged in 20 May statement Rs 979.45

Service Tax 12.36% on Interest rate Rs 121.06

Outstanding due in 20 May statement Rs 17100.51

 

Interest rate is computed on daily basis on the outstanding amount from transaction date, so it is very important for you to clear your credit card dues in timely manner otherwise your balance will keep on accumulating and the chances of you becoming a defaulter will increase.

 

The recent burst in US is a live example of how credit bubble is not good and how it sinks the whole economy if proper credit mechanisms are not used. In financial terminology, it is called discipline; there is no point in giving a credit card or cash to someone who does not know how to use it in the right way.

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