Average Cost of Credit Card Debt in India 2019

Using a credit card is the best way to pay for daily purchases, as you can earn valuable rewards like cashback or airline miles every time you swipe. However, if you don't pay off your balance in full each month, using a credit card to borrow money for the long-term can become cripplingly expensive. Below, we discuss the average credit card interest rate in India, how credit card debt works and ways consumers can avoid this expensive form of borrowing.

Average Credit Card Interest Rate in India

We analysed over 200 credit cards, and found an average annual interest rate around 41%, which is an incredibly high cost compared to other available options. In India, the interest rate on credit card debt is classified as a Finance Charge, and also known as the Annual Percentage Rate (APR). Note that some banks express APR as a monthly rate (APR divided by 12), which can seem deceptively low to an unsuspecting consumer.

IssuerAverage APR
Industry Average41%
IndusInd46%
Axis Bank43%
RBL Bank42%
ICICI41%
American Express41%
HDFC41%
Standard Chartered41%
TATA Capital40%
Citi40%
Kotak Mahindra39%
Bank of Baroda39%
SBI39%
HSBC38%
YES Bank36%
IDBI35%
Corporation Bank32%
Dhanlaxmi Bank21%

How Interest is Charged on Credit Card Debt

Given the extremely high average credit card APR in India, it is important to understand how you are charged interest on your credit card to keep potentially exorbitant costs under control.

Interest-Free Grace Period

To begin with, most credit cards have an interest-free "grace period", whereby charges made during a given month, or billing cycle, won't accrue interest if you pay your full balance in the following cycle.

For example, assume a consumer uses a credit card to buy a Honda motorbike for Rs. 50,000 on 15 April. Then, on 30 April the bank sends a statement of all the charges made in April and how much is owed (Rs. 50,000 if nothing else was charged in April). 30 April is called the Statement Date. The statement will also indicate when payment is due (called the Payment Due Date) – for example, 20 May. As long as the Rs. 50,000 balance is paid by 20 May, no interest will be charged. In this case, the grace period is 36 days, or the number of days from when the bike was purchased on 15 April to the Payment Due Date of 20 May.

Grace periods vary by bank, so it is very important to pay attention to Payment Due Date depending on the specific situation.

How Interest is Charged

If a credit card balance is not paid off in full each month, the grace period will not apply. In the above example, assume the consumer already had a small unpaid balance of Rs. 100 on his or her credit card from the previous cycle that had been due for a few months. Interest on the Rs. 100 would not be a very big deal, but the existence of any balance would mean that the Interest Free Period would not take effect in this case, and that the Rs. 50,000 would begin accruing interest right away on 15 April when the bike is purchased.

Banks apply a Daily Rate of Interest to any credit card balance at the end of each day. The daily rate is calculated by dividing the annual rate (APR) by 365. In this example, a 40% annual rate (typical in India) would equate to 0.11% (40% ÷ 365). So, you would be charged 0.11% × Rs. 50,000, or approximately Rs. 55, each day you do not pay down your balance. By your 30 April Statement Date, you would be charged interest for 16 days (15 Apr–30 Apr, inclusive). Thus, you would owe an additional Rs. 877 on top of the Rs. 50,000 for the motorbike.

Last, banks charge Goods & Services Tax (GST) of 18% on interest as well. On Rs. 877 of interest, GST will result in a further charge of Rs. 158, for total additional cost of Rs. 1,035.

How Much Would a Very Large Purchase Cost Over Time?

When temporarily strapped for cash, paying ~2% extra (Rs. 1,035 ÷ 50,000) to finance a one-off motorbike purchase for one month isn't the end of the world. However, carrying credit card debt over the long-run can be very costly, exacerbated by compound interest (the concept of charging interest on interest). If a credit card balance is not paid down quickly, an extra 10% would be owed after just 3 months, while waiting a year would cost an extra 56%.

If a Rs. 50,000 balance is not paid down quickly, an extra 10% would be owed after just 3 months, while waiting a year would cost an extra 56%.

The Bare Minimum

In the above example, we ignored Minimum Amount Due (typically 5-10% of total amount) for simplicity. However, repeatedly just paying the minimum amount is not viable – in the long-run, it will not provide significant relief to the high interest charges outlined.

For completeness, if the consumer in our example did not at least pay the minimum amount due, he or she would incur additional charges (up to several hundred rupees each month). Further, failure to pay the minimum amount could result in default and reporting to credit bureaus, which would make it more difficult for the consumer to borrow money in the future.

Better Alternatives to Taking on Expensive Credit Card Debt

Sometimes a large expense cannot be planned for, especially in an emergency, and it's necessary to borrow money to cover it. Below are two different alternatives that could significantly reduce borrowing cost compared to carrying a credit card balance.

Personal Loans

First, a personal loan is a great option when you need funds quickly. The best personal loans in India typically have annual interest rates in the 10–15% range, significantly lower than the average of 41% for credit cards.

A personal loan can be obtained from a lender for any purpose, such as to cover an unexpected medical procedure. While some personal loans can take up to a few days to acquire, some banks in India also provide them as soon as the same day. Importantly, most banks have income requirements to obtain a personal loan, and they tend to prefer applicants who are employed with salaries. However, there are also options for low-income earners or self-employed individuals.

Balance Transfer

If a consumer has already charged a large expense (or many expenses) to a credit card, another option is a balance transfer. This is a transfer of credit card debt from one card with a high interest rate to a different one with a much lower interest rate.

For example, Standard Chartered offers a balance transfer with 0.99% monthly interest (~11.9% annually) for the first 6 months. It is important to note that the regular credit card interest rate will kick in after the low interest period (Standard Chartered's average credit card interest rate is 41%). So, make sure to repay the debt in the time allotted if you take this route.