Credit Card
CreditA credit card provides a revolving credit line with a 45-50 day interest-free grace period. Unpaid balance attracts 36-42% annual interest. Used correctly (paid in full monthly) it is a 0% interest loan with rewards.
In detail
Never pay only minimum -- interest charged on entire outstanding at 3-5% per month. Keep utilisation below 30% of limit to protect CIBIL score. Best practice: use for all purchases, set auto-pay for full outstanding, earn rewards at zero cost.
Formula
Effective annual rate = Monthly rate x 12nAt 3.5%/month = 42% per annum
Real-life example
🇮🇳 India example
Rs 80,000 outstanding at 3.5%/month, paying only minimum Rs 4,000/month: 28 months to clear, Rs 32,500 total interest. A personal loan at 14% would have cost only Rs 9,800 total interest.
Frequently asked questions
Does closing a card hurt CIBIL? ▼
Yes -- reduces available credit (worsening utilisation) and shortens credit history. Keep old cards open with zero balance rather than closing them.