Credit cards are highly popular financial tools due to the numerous benefits they offer. These cards let you make substantial purchases and convert them into credit card EMIs if you have a feeling that you won’t be able to pay for it in a lump sum.
However, knowing all about the associated interest rates is essential since issuers apply interest on your EMIs.
An Overview of Interest Rates on Credit Card EMIs
In most cases, you need to pay interest on credit card EMIs. It is a percentage of the total bill you receive at the end of the month. The card issuing company or the bank determines the interest rate you need to pay.
This rate depends on various factors, with your creditworthiness being the most crucial factor. Issuers generally apply a lower interest rate if you have a high credit score and vice-versa. However, if your issuer offers a no-cost EMI, you can avoid paying these charges.
Calculation of Interest Rates on Credit Card EMIs
By following these steps, you can compute the interest rate applicable to your EMI. But first, here is the formula to calculate the monthly EMI on a credit card.
EMI = [P x R x (1+R)^n] / [(1+R)^(n-1)]
Here,
- P = Total amount borrowed
- R = Applicable monthly interest rate
- n = Total number of monthly payments
To calculate the interest rate levied, simply follow this process:
- Substitute the known values for n, P and the monthly EMI amount
- Rearrange the aforementioned formula to compute the interest rate
R = [EMI / P] / [(1 – (1 / (1 + R)^n)]
- Get the annual interest rate by multiplying the monthly rate ‘R’ by 12
Factors Determining Interest Rates on Credit Card EMIs
Here are some factors that influence the interest rates on your instalments:
Creditworthiness
As mentioned, issuers pay attention to your repayment capacity while approving your application for the card as well as determining the interest rates. This helps issuers assess risk factors associated with this lending facility.
If your overall financial profile, including your credit score, is strong, card issuers will offer you a lower rate since the risk is less. On the other hand, they will apply a higher rate to compensate for the risk if your score is on the lower side.
Fees and Charges
Your card comes with a number of associated fees and charges. Issuers levy additional charges, including balance transfer fees, annual renewal charges, and more. With the addition of these costs, your overall borrowing cost also goes up.
Before converting your purchases into EMIs, paying attention to the fees and charges is essential. This can help you make a well-informed choice.
Type of Card
The card type also influences the interest rates. Some cards have a fixed interest rate, while others start with a lower introductory rate that later changes to a higher rate.
In some cards, you’ll get variable rates that can go up or down. Explore the available card types and pick the one that fits your needs best.
Prime Rates
Interest rates on your card are typically decided on the basis of the current interest rate or prime rate. This rate serves as a starting point for deciding how much interest you’ll pay on your credit card.
If your card has a variable rate, it can change based on market conditions. This way, the prime rate has a significant effect on the rates applicable to your card.
EMI Tenure
The duration of repayment that you choose also affects the interest rate on a credit card EMI. The longer the tenure, the higher the interest rate.
If you are looking for an affordable credit card for EMIs, consider the One Credit Card. It lets you convert your big-ticket purchases into affordable EMIs and repay them conveniently.
With this card, you also get 5X reward points on the top two spending categories and a wide range of exclusive deals and discounts. What’s more, you don’t need to worry about paying any joining fees, annual renewal charges, or reward point redemption charges.
Also, through its powerful online credit card app, you can apply for this card and manage it without any hassles. Apply online now to enjoy the best card experience.
