When using a HDFC Credit Card, it’s important to understand the various charges associated with it. One of the most significant charges is the finance charge. Knowing what finance charges are and how they are calculated can help you manage your credit card usage more efficiently and avoid unnecessary costs.
Understanding Finance Charges in HDFC Credit Card
A finance charge refers to the interest that is levied on your credit card balance when you don’t pay off the full amount by the due date. It’s essentially the cost of borrowing money from the credit card issuer and varies depending on your outstanding balance, billing cycle, and other factors.
If you don’t clear your total outstanding by the due date, HDFC Bank charges interest on the remaining balance. This interest continues to accumulate until the total amount is paid off.
How Are Finance Charges Calculated?
HDFC calculates finance charges on a daily basis. This means that the interest is applied to the amount you owe each day, and is compounded daily. Here’s how the charges are generally calculated:
- The bank applies an interest rate (usually between 1.99% and 3.49% per month) on the outstanding balance.
- This interest is calculated on a daily outstanding balance basis, meaning every day’s balance is taken into account for computing the finance charges.
For example, if you have an outstanding balance of ₹10,000 and your credit card charges an interest rate of 2.99% per month, the daily interest rate would be approximately 0.099% (2.99%/30 days).
This translates into:
- Daily interest = ₹10,000 x 0.099% = ₹9.90
- For the first day of non-payment, you’ll be charged ₹9.90 in finance charges.
- If you carry over the balance for 30 days, the total interest for that month will be ₹297 (₹9.90 x 30).
The interest compounds every day, meaning the next day’s interest will be calculated based on the updated outstanding amount (which includes the previous day’s interest). This is why paying off your balance as soon as possible is essential to avoid an increase in your debt.
When Do Finance Charges Apply?
Finance charges are typically applied in the following scenarios:
1. Partial Payment or Non-Payment of Dues
If you don’t pay off the entire due amount by the payment due date, finance charges will be applied to the outstanding balance. Even if you make a partial payment, interest will be charged on the remaining unpaid balance.
2. Cash Withdrawals
Using your HDFC credit card to withdraw cash from an ATM is treated differently from regular transactions. A higher finance charge is applied to cash withdrawals, and the interest is charged from the day you withdraw the cash until the entire amount is repaid. No interest-free period is available for cash advances, so these are one of the most expensive credit card transactions.
3. Carrying Forward Previous Balances
If you had an unpaid balance from the previous billing cycle, finance charges would be applied to that carried-forward amount. This applies even if you make new purchases in the current billing cycle and pay them off.
4. EMI Transactions
If you’ve converted any purchases into EMI transactions, finance charges will be applied as part of the EMI structure. The rate of interest on EMI conversions can vary depending on the tenure and the offer provided by the bank.
Interest-Free Period and Finance Charges
HDFC offers an interest-free period ranging between 20 to 50 days depending on your billing cycle. If you pay off your credit card dues within this period, no finance charges will be applied.
However, it’s important to note that this interest-free period is only applicable if you have cleared all your previous dues. If you carry forward an unpaid balance from the previous cycle, the interest-free period won’t apply, and finance charges will accrue on both the carried-forward amount and the new purchases.
What is the Interest Rate on HDFC Credit Cards?
The interest rate on HDFC credit cards can range between 1.99% to 3.49% per month, depending on the type of credit card and the user’s credit profile. On an annual basis, this translates into an APR (Annual Percentage Rate) of around 23.88% to 41.88%.
The exact interest rate may also be affected by factors such as:
- Your credit card usage
- Timely payments of dues
- Credit score
- Credit limit usage ratio
It’s advisable to check the exact rate mentioned on your HDFC credit card statement to understand the specific charges that apply to you.
How to Avoid Finance Charges on HDFC Credit Cards?
Paying attention to your credit card usage can help you avoid finance charges. Here are some tips:
1. Pay Your Total Outstanding Amount on Time
The most straightforward way to avoid finance charges is to pay off your entire credit card balance by the due date. This ensures that no interest is levied on your purchases, and you can enjoy the benefits of an interest-free period.
2. Avoid Cash Withdrawals Using Credit Cards
Cash advances from credit cards come with no grace period, and finance charges start accumulating immediately. To avoid high finance charges, it’s better to avoid withdrawing cash using your credit card unless absolutely necessary.
3. Convert Large Purchases into EMIs
If you’ve made a large purchase and can’t pay off the balance immediately, converting it into an EMI might be a more affordable option. EMI plans often come with a lower interest rate than the regular finance charges.
4. Monitor Your Credit Card Usage
Keeping track of your credit card expenses and paying more than the minimum amount due each month can help you manage your finances better. If possible, aim to clear your entire balance instead of just making partial payments.
5. Avoid Carrying Forward Balances
Carrying forward unpaid balances not only increases your interest charges but also affects your interest-free period on new purchases. Always aim to clear your previous balances to maintain the interest-free period on your new spending.
What Happens If You Only Pay the Minimum Due?
If you opt to pay only the minimum due amount on your HDFC credit card bill, you may avoid a late payment fee, but finance charges will still be applied to the remaining balance. This is because the minimum due does not cover the total outstanding balance, and as a result, interest will continue to accrue on the unpaid amount.
Paying only the minimum due consistently can result in debt accumulation over time due to the compounding interest on the outstanding balance. It’s always better to pay off more than the minimum due to reduce finance charges and clear your debt faster.