How credit card interest is calculated: calculation rules, formulas and examples

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The question of interest on a credit card is simple and complex at the same time. Today, such products are widespread, but often their owners do not fully understand the terms of their use. In this article, we will take a closer look at how interest is calculated on a credit card.

Mechanism for calculating interest on credit cards

To begin with, the interest specified in the loan agreement is calculated. They are calculated based on the amount of debt, and not on the provided credit limit.

Events can develop in two ways:

1. People pay for purchases with a credit card. In such a situation, interest will begin to accrue only after the end of the grace period. Currently, they are provided by almost all banking organizations that issue credit plastic.
2. A person cashed out money or made other debit transactions through an accountcredit cards. In this case, the amount of debt the next day will be increased by the amount of interest. Only in rare cases, banks leave customers the opportunity to use the interest-free period after cash withdrawals.

Much remains unclear

Often, after issuing credit cards, unpleasant situations arise. A person seems to understand the percentage, but where the amounts of debt come from is not clear. And the recalculation of payments shows that the overpayment is more than the amount originally declared. How is credit card interest calculated in this case? It is important to remember about insurance, which, as a mandatory element, is attributed almost by default to all banking products that involve a cash loan.

It is necessary to carefully read all the points reflected in the contract before receiving a credit card so that such surprises do not arise. The client always has the right to refuse insurance if the proposed conditions do not suit him. If the banking organization is not ready for such concessions, then you can choose another insurer whose conditions will be more acceptable.

How do credit card interest accrue?

First, you should highlight such a thing as the reporting date. For all clients, it is individual, the reporting period begins with it. It is determined in three ways:

1. First credit card withdrawal.
2. Activation of the card by the client.
3. The date the credit card was issued (usuallyindicated on the envelope in which the PIN code is issued).

The bank chooses which approach to use. In some cases, the grace period is not provided, or it has already ended. In this case, in addition to the money used, the client will need to pay the interest stipulated by the agreement.

Be that as it may, banks set a minimum monthly payment amount. As a rule, it is 5% or more of the existing debt. Even if the cardholder has used a very small amount, he will have to pay the stipulated minimum.

Algorithm

Now let's analyze the algorithm in detail. The interest rate is multiplied by the amount of debt available at the reporting date. The result, which is obtained, is divided by the number of days in a year, and then multiplied by the number of days of the loan.

Example: if you spend 30 thousand rubles from a credit card that has an interest rate of 25%. Then: (30 thousand rubles25%) / 36530 days=616.44 rubles. This is how much you will have to pay for using 30 thousand rubles for one month.

How credit card interest is calculated using examples below.

Procedure for calculating effective interest rates (EPR) on credit cards

First of all, you should understand the concept of effective interest rate. In simple terms, this concept refers to the percentage of overpayment for the use of credit funds. In accordance with the new banking legislation, the concept of EPS was replaced by PSK(full cost of the loan). This change is regulated by Article 6 of Article 353-FZ, related to consumer lending.

The value is not only the percentage announced by the bank. The accompanying payments are also taken into account, which are known to the client at the time of the conclusion of the loan agreement:

1. Cost of servicing a credit card.
2. Card issue cost.
3. Insurance.
4. Pay for deposit and withdrawal transactions.
5. Other payments stipulated by the contract.

How much the cardholder uses, as well as during what period he will pay off the debt, is not known in advance. This is enshrined in the regulations of the Central Bank.

The correct calculation of the effective interest rate will be if we assume that the borrower used the entire credit limit at once. In this case, the payment schedule will consist of the same monthly amounts.

This approach is undoubtedly controversial, and few people use a credit card in this way. As a rule, a bank client uses it if it becomes necessary to use additional money. Moreover, the debt that has arisen will be canceled in the near future. A similar approach on the part of the cardholder is most relevant if the bank has provided a grace period for its product.

One thing to agree on is that the effective interest rate calculated in this way will not be less than the actual one. That is, it is better to voice the worst option right away, the use of a loan will not cost more.

Grace period included

More close to the truth will be the calculation of accrued interest on a credit card, taking into account the use of the grace period. If we consider an example with a card with a credit limit of 30 thousand rubles, the issue of which cost 650 rubles, then it turns out that the EPS will be only 3.2%. This is provided that there is no insurance, the client did not withdraw money in cash, mobile banking services are provided free of charge, and all debt is canceled within an interest-free period.

Quite recently, all banks were obliged to report to the client data on the amount of expected overpayments on a credit card or loan. Financial institutions must indicate this information on the sheets together with the debt repayment schedule.

Calculation of interest for withdrawing funds from credit cards

It is important to find out in advance how interest is calculated on a credit card if you withdraw cash from an ATM. As a rule, banks charge 5% of the withdrawn amount, but sometimes the percentage can be higher. One of the main pitfalls lies in the fact that you will also have to pay a commission of about 200 rubles (sometimes more) for cash withdrawals. At first glance, such an amount seems insignificant to customers, but if you think about it, the additional expense when withdrawing 1 thousand rubles will be 20%. Undoubtedly, if you withdraw large amounts from a credit card, then this value will not be very noticeable.

Often, financial institutions do not provide grace periods for repayment of debts if a client withcredit card withdrew money or made transfers. If, nevertheless, the need for such operations has arisen, then you should not use the first ATMs that come across for them. It is recommended to look for self-service devices of the bank that issued the card, or a financial institution that is its partner.

Only one thing is clear - cashing out money from credit cards is unprofitable for customers. Such operations should be avoided.

Review of interest rates on credit cards of various banks

Among credit cards, there are offers that allow you to receive bonuses for using, certain sets of discounts in different stores, an extended interest-free period. To better appreciate what interest is charged on different cards, and to understand such a variety, you should consider the products offered by various financial institutions.

The calculation of interest on the Alfa-Bank credit card is as follows:

1. The bank charges a rather large commission for cashing out - at least such an operation will cost 500 rubles, if you withdraw large amounts, you will have to pay from 6.9%.
2. The bank charges on its loans an average of 23.99-38.99% per annum.
3. Favorably differs by the possibility of using the longest (in comparison with other banks) grace period, which is 100 days. That is, for the first three months, the bank will not charge interest for the use of credit funds. This bank also offersand other plastic loan products with a grace period of 60 days, which is also longer than in other cases.

Tinkoff Bank

Many are interested in the question of how interest is calculated on a Tinkoff Bank credit card:

1. Interest on the card of this bank depends on how the client uses it - withdraws cash or pays for purchases. This indicator fluctuates in the range of 24.9–45.9% per year.
2. A credit institution charges 590 rubles for servicing a year.
3. Cashing out funds will cost 290 rubles plus 2.9% of the withdrawn amount.
4. The grace period for the products of this banking institution is 55 days and no more.

These credit cards are popular and widespread, despite the fact that the bank has no offices, and customer service is carried out remotely via the Internet.

Despite the fact that interest on Tinkoff credit cards is usually higher than that of competitors, customers receive several benefits:

1. Card home delivery.
2. Easy design.
3. Cheap credit card service.
4. Wide network of partner banks.

Accrual in Sberbank

Now let's look at how interest is calculated on a Sberbank credit card:

1. The average interest rate on Sberbank credit cards is 25.9=33.9%.
2. Cash withdrawal will cost at least 390 rubles or 3%.

It should be noted that offers for accruing interest on a Sberbank credit card for regular and privileged customers do not differ. There are Momentum credit cards, which are distinguished by quick processing and issuance. But only customers of the bank can get them and only by special offer. Cashing out funds for such a product is cheaper - at least 199 rubles for each operation.

VTB 24

How is interest calculated on a VTB 24 credit card?

1. Interest rates on credit cards of this bank can be different - 22, 26, 28%. The interest on the classic product offered by this bank is 33%.
2. Grace period - 50 days.
3. Cashing out funds will cost at least 300 rubles or 5.5%.

Bank of Moscow

This bank doesn't have many credit card offers, but each product has an interest free period of 50 days. The percentage on cards is 29.9–36.9%. Clients of the VIP category, under a special offer from the bank, can receive a card with a rate of 16%. For cash withdrawals, you will need to pay a minimum of 500 rubles or 6.9% of the cashed amount.