Credit card interest rates are one of the top concerns when using a credit card. They not only affect timely debt repayment but also significantly impact the cost of using your card. Therefore, understanding how credit card interest is calculated and ways to minimize interest costs is crucial.
Contents
- What is credit card interest?
- How is the 45-day interest-free principle understood?
- When does credit card interest arise?
- Types of interest rates on credit cards
- General interest rates
- Cash withdrawal interest rates
- How to calculate credit card interest and specific examples
- Calculating interest when withdrawing cash from a credit card
- Interest on shopping transactions for goods and services
- Five tips to avoid credit card interest
- Current credit card interest rates of banks
A credit card, issued by a bank, allows you to spend money first and pay later. The bank will provide a certain credit limit based on the customer’s financial status and credit history. Customers can spend within this limit via POS swiping, cash withdrawals, online payments, etc. Naturally, you must repay the borrowed amount to the bank on time. Failure to repay fully and on time will result in the bank charging interest on the outstanding balance.
What is credit card interest? Credit card interest is the amount a credit card holder must pay the bank when withdrawing cash or failing to repay the outstanding credit card debt on time. Typically, banks offer an interest-free period of 45-55 days to allow customers to repay the borrowed amount in full. Each credit card type will have different interest rates as stipulated by the issuing bank.
How is the 45-day interest-free principle understood? Usually, credit cards offer an interest-free period of 45-55 days. The 45-day interest-free period includes 30 days from the statement date plus a 15-day grace period. Similarly, a 55-day interest-free period includes a 25-day grace period instead of the usual 15 days.
Maximum interest-free period of 45 days = Maximum statement period of 30 days + 15-day grace period
Note: Cash withdrawals from a credit card at ATMs do not enjoy the interest-free period.
For example, you use a credit card (with a 45-day interest-free period) to purchase a laptop worth 10 million VND on May 1, with a payment due date of June 15, and a credit card interest rate of 1.5% per month. If you repay by May 31, you won’t incur any interest.
When does credit card interest arise?
- Late payment: Banks generally offer a 45-day interest-free period. After that, if the cardholder fails to repay the full amount, the bank starts charging interest on the total amount spent, not just the outstanding balance. This interest rate can range from 15-30% depending on the bank.
- Failure to pay the minimum due amount: Besides interest, late payment fees will be charged, typically ranging from 4-6% of the minimum due amount.
- Cash withdrawal: Withdrawing cash using a credit card incurs a cash advance fee (around 4%) and interest charges starting from the transaction date.
Types of interest rates on credit cards General interest rates: Credit card interest rates are similar to consumer loan rates, with a 45-day interest-free period. If the balance is paid within this period, no interest is charged. After the interest-free period, the interest rate applies similar to regular loans, varying by card type.
Cash withdrawal interest rates: Withdrawing cash from ATMs incurs a fee of 3-5% of the transaction amount, with a withdrawal limit of up to 70% of the credit limit. Additionally, foreign currency conversion fees apply for overseas withdrawals, and interest is charged immediately upon cash withdrawal.
How to calculate credit card interest and specific examples Calculating interest when withdrawing cash from a credit card: Cash withdrawal is a feature of credit cards, but banks discourage it, charging 2-4% per transaction. Interest accrues from the transaction date until full repayment.
Example: On April 1, you withdraw 5 million VND from an ATM, with a payment cycle from April 1 to May 15, a 20% annual interest rate, and a 3% cash advance fee. If you repay on May 20, the fees are:
- Cash advance fee: 4,000,000 x 3% = 120,000 VND
- Interest from April 1 to May 20: 5,000,000 x 20% / 365 x 50 days = 137,000 VND Total fee: 150,000 + 137,000 = 287,000 VND
Interest on shopping transactions for goods and services: Online purchases or POS transactions enjoy a 45-55 day interest-free period. Paying within this period avoids interest charges. Interest calculation examples vary based on repayment behavior:
Scenario 1: Full repayment on due date Example: With a 45-day interest-free period and 20% annual interest, if you:
- May 8: Purchase a phone for 5 million VND.
- May 15: Pay an electricity bill for 1 million VND.
- June 10: Repay 6 million VND in full.
No interest will be charged if repaid by April 14.
Scenario 2: Minimum payment on due date Example: With a 45-day interest-free period, 20% annual interest, and a 5% minimum payment:
- May 8: Spend 5 million VND at Big C.
- May 15: Pay a 1 million VND bill.
- June 15: Pay 300,000 VND (5% minimum payment).
- June 20: Repay the remaining 5.7 million VND.
Interest calculation:
- May 8-14: 5,000,000 x 20% / 365 x 7 days = 19,179 VND
- May 15-June 14: 6,000,000 x 20% / 365 x 30 days = 98,630 VND
- June 15-20: 3,000,000 x 20% / 365 x 5 days = 8,219 VND Total interest: 19,179 + 98,630 + 8,219 = 126,028 VND
Scenario 3: No minimum payment on due date Example: With a 45-day interest-free period, 20% annual interest, and a 5% minimum payment:
- May 8: Spend 5 million VND at a restaurant.
- May 15: Pay a 1 million VND bill.
- June 20: Repay 6 million VND.
Interest and late fees:
- May 8-14: 5,000,000 x 20% / 365 x 7 days = 19,179 VND
- May 15-June 20: 6,000,000 x 20% / 365 x 35 days = 115,068 VND
- Late fee: 6,000,000 x 5% = 300,000 VND Total: 19,179 + 115,068 + 300,000 = 434,265 VND
Tips to avoid credit card interest:
- Pay on time: Ensure full payment within the interest-free period to avoid interest. If full payment isn’t possible, pay at least the minimum amount.
- Make transactions at the start of the billing cycle: This maximizes the interest-free period.
- Set up automatic payments: Prevent missed payments and avoid interest and late fees.
- Choose suitable cards and limits: Consider annual fees and interest rates, and select a credit limit that matches your repayment ability. Typically, choose a limit up to 50% of your income.
- Be cautious with cash withdrawals: Use this feature only in emergencies due to high fees and interest.
Current credit card interest rates of banks: Interest rates range from 15-33% per year, varying by bank and card type. Here’s a summary of rates from some banks:
| Bank | Interest Rate per Year |
|---|---|
| BIDV | 15.5%-17% (varies by card type) |
| Vietinbank | 18.5% |
| Agribank | 18.5% |
| Vietcombank | 15%-18% (varies by card type) |
| VIB | 0%-36% (varies by card type) |
| ACB | 15%-29% (varies by card type) |
| Sacombank | 12%-31.2% (varies by card type) |
With numerous benefits, credit cards are a flexible and useful financial tool in modern life. Understanding credit card interest rates helps you plan smart usage and prudent spending.
