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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
Credit Card Concepts you must know, part 1: APR, EAR, Minimum Amount Due, Total Amount Due, Billing date, payment due date, interest-free period, card limit.
In Debt Management
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10:57:41 AM, 3rd February, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka
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    1. Annual Percentage Rate (APR)

    This is also called the Quoted Rate. So, when a bank says that they will charge X% on a loan or on your credit card, they are talking about APR.

    2. Effective Annual Rate (EAR)

    This is the actual interest rate you pay on an annual basis in any kind of loan. EAR depends on the compounding interval which can be daily, monthly or quarterly.

    So, if the creditor uses a monthly compounding the EAR would be

    = (( 1+ (APR / 12)) ^ (12)) - 1

    So, if the quoted rate is 33%, the EAR based on monthly-compounding is

    = (( 1+ (33% / 12)) ^ (12)) - 1

    = 38.48%

    In the case of daily compounding, the EAR would be

    = (( 1+ (APR / 365)) ^ (365)) - 1

    So, if the quoted rate is 33%, the EAR based on monthly compounding is

    = (( 1+ (33% / 365)) ^ (365)) – 1

    = 39.08%

    3. Monthly Rate

    Monthly rate = APR / 12

    So, for a 33% APR,

    Monthly rate = 33% / 12 = 2.75%


    1. Minimum Amount Due (MAD)

    This is the minimum amount you need to pay to avoid paying any late fee. Paying this amount does not save you from the interest payment.

    2. Total Amount Due

    This is the actual amount due to the credit card company.


    1. Statement Date or Billing Date

    In the date when the credit card statement is prepared and sent to the credit card holder.

    2. Payment due date

    It is the date by which the credit card dues to be paid. It is mentioned in the statement and depends on the interest-free period.

    3. Interest-Free Period

    The interest-free period is the maximum days for which interest is not payable on transactions. Consider your billing date is the 10th of a Month and the interest-free-period is 50 days. The dues for the transactions from 11th April to 10th May will be payable by the 30th of May.

    For cash-advances and new transactions when there is an outstanding due, the Interest-Free Period is not applicable.

    4. Card Limit

    This is the maximum balance a credit card company allows on a credit card. The credit card company generally charges a penalty for going above this limit.

    These are some basic terms. For all the terms read the MITC (Most Important Terms and Conditions) document for your credit card thoroughly.

    To be continued...

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