Find the monthly interest charge on a carried-over credit card balance.
Credit card interest is not applied as a simple annual percentage on your balance. Card issuers quote a monthly rate, often around 3 to 4 per cent in India, and interest compounds daily. A 3.5 per cent monthly rate is roughly 42 per cent a year before compounding, and around 51 per cent once daily compounding is included. That gap between the quoted monthly figure and the effective annual cost is where most of the surprise comes from.
The other thing worth understanding is the grace period, and how easily it disappears. If you pay your statement balance in full by the due date, purchases carry no interest at all. The moment you pay less than the full amount, even by a small margin, the grace period is usually lost and interest is charged from each purchase's transaction date, not from the due date. Cash withdrawals are treated differently again: they attract interest from day one with no grace period, plus a separate withdrawal fee.
The minimum is typically around 5 per cent of the balance. Paying only that clears little principal while interest continues to compound on the rest, so a balance can take years to clear and the total interest can exceed the original purchase amount. Paying any amount above the minimum shortens this considerably.
No, and this is the common mistake. Interest compounds, so the effective annual rate is higher than twelve times the monthly rate. A 3.5 per cent monthly rate works out near 51 per cent annually once compounding is accounted for, against the 42 per cent a simple multiplication suggests.
Not on purchases. Paying the statement balance in full by the due date means purchases stay interest-free through the grace period. Cash withdrawals are the exception and accrue interest immediately regardless of how you pay.
It is generally forfeited. Once a balance is carried, interest is normally charged on the full outstanding amount from each transaction date, and new purchases stop being interest-free until the account is cleared completely.