Credit Card Interest Explained
Credit Card interest rate also referred to as Monthly Percentage Rate, varies from one Card provider to another and may also vary across different Credit Cards from the same provider. It is an essential factor to consider before signing up for a Credit Card. Here is all the information about the Credit Card interest rate and how interest is charged on your Credit Card.
What is Credit Card Interest Rate?
Credit Card services allow you to borrow money. This money is loaned to you at a fixed rate of interest, also called the Credit Card interest rate. For Credit Cards, interest is expressed as a monthly rate known as the Monthly Percentage Rate, or MPR. It is applied if you don’t pay your monthly Credit Card bill in full. The Card interest is charged on your outstanding balance and not on the total money you borrow.
How is Credit Card Interest Rate Calculated?
Interest is payable at the monthly percentage rate on all Charges from the date the Cardmember incurs the transaction until they are fully repaid, except where an interest free period applies. Interest, if payable, is calculated by multiplying:
- The daily balance of Charges on which interest is payable; by
- The daily percentage rate (monthly rate multiplied by twelve divided by 365); and then
- Adding up the daily interest Charges for the applicable period.
In case the payment made towards the monthly statement of account for any particular month is less than the total interest and Applicable Taxes billed in that particular statement, the remaining interest amount will get added to subsequent month’s outstanding and such shortfall in interest will attract interest on interest.
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American Express Credit Card Interest Rates
American Express Credit Cards have different interest charges and transaction fees. Your Credit Card arrangement specifies the charges that apply to your purchases, balance transfers and cash withdrawals.
When you pay a part of your outstanding balance the transactions with lower interest rates are paid off first.
If you fail to make a repayment or spend more than your agreed spending limit, you will be charged a penalty interest rate.
Find out more about American Express Credit card charges and fees
Do Charge Cards have Interest Rates?
Charge Cards do not have interest rates as they do not extend credit to you. The full balance on a Charge Card is to be fully paid at the end of each month. This means you have no outstanding balance at the beginning of the next month.
When is the Interest on a Credit Card Charged?
If you pay your total due amount in full before the Payment Due Date, no Credit Card fee is applied to your account. However, you might have to pay the interest in the following scenarios:
- When you skip paying the Credit Card bill by the Payment Due Date
If you don’t pay the Credit Card bill altogether, you will be charged interest on the outstanding amount as well as on any new transactions made after the due date, till the previous balance is cleared. Also, a late payment fee will be applied to your account.
- When you pay only the Minimum Due amount
The interest will be charged not only on the balance amount but also on all the fresh purchases made until the previous amount is paid in full.
- When you pay less than the Minimum Due amount
Not just the balance, but full amount will attract interest along with any new purchases made till the time the previous amount is paid in full.
- When you withdraw cash using a Credit Card
You can also use your Credit Card to withdraw cash American Express doesn’t charge an interest on the Cash withdrawal.
How do I get the best Credit Card interest rate?
The additional benefits and rewards you get from using a Credit Card also impact which type of Credit Card is the best for you.
If you use your Credit Card to pay for purchases and always make full monthly payments, you can focus on Membership Rewards Points or travel loyalty programs when deciding, which Card is for you. The Platinum Travel Credit Card is likely to be perfect.
If you are sometimes unable to make the full payment on your Credit Card or would like to have greater flexibility with payments, then you will want to look for the lowest MPR from a Card. Your credit score will affect the MPR you can receive when applying for a Credit Card.