A credit card interest rate of 3.50% a month is 42% a year, and about 49.6% once the 18% GST on the interest is added. Kotak's key fact statement for its White Signature card uses exactly that figure, "3.50% monthly (42.00% annualized)", in its worked example. Your own card's key fact statement lists the rate that applies to you.
Credit card interest rate: monthly to yearly
Which yearly number is yours depends on how your issuer charges the interest.
| How the 3.5% is counted | Yearly cost |
|---|---|
| Twelve months of 3.5%, as the card states it | 42.00% |
| Plus 18% GST on the interest, as in Kotak's example | 49.56% |
| Unpaid interest charged interest again, monthly | 51.11% |
| Both of the above together | 60.31% |
If you pay the interest every month and only carry the principal, 49.56% is the figure. The higher two rows apply only if your issuer charges interest on interest, which you can check in the Most Important Terms and Conditions. RBI's card directions define the annual percentage rate as the yearly cost of credit including the interest rate and all other charges, and require issuers to quote it for different situations in the terms and conditions. Look for that APR line.
The ₹1,000 you did not pay
The interest-free period is the time from the date of purchase to the due date, and RBI's directions say it ends if any balance from the previous bill is left. Kotak's illustration counts 47 days for a purchase on 12 April with a due date of 28 May.
Say you spend ₹50,000 on 12 April and pay ₹49,000 on the due date, leaving ₹1,000. Kotak's statement says interest is charged on the total amount due, from the transaction date, until the earlier balance is cleared. On that reading the interest is ₹2,704 plus ₹487 GST for 47 days, 2.7 times the unpaid amount. If your issuer charges only on the ₹1,000 left over, the interest is ₹54 plus ₹10 GST.
RBI's own answer is that interest may be levied from the date of the transaction on the outstanding amount. So the difference between ₹54 and ₹2,704 sits in your card's wording. Pay the total due, not the total minus a convenient round number.
What paying only the minimum does
Kotak sets the minimum amount due at 1% of the retail balance plus all interest and GST, with a ₹100 floor. Take a ₹30,000 balance with no new spending. The first month's minimum is ₹1,539, of which ₹300 reduces what you owe. The other ₹1,239 is interest and GST.
After 12 minimum payments you have paid ₹17,485 and still owe ₹26,592. After five years you have paid ₹69,693, of which ₹47,549 is interest and ₹8,559 is GST, and the balance has only fallen to ₹16,415. The model reproduces the 14 months Kotak's own statement gives for clearing a ₹1,000 balance on minimums, so the mechanics match the published rule.
There is no 30% cap to rely on
In December 2024 the Supreme Court set aside the consumer commission's order that had treated card interest above 30% a year as an unfair trade practice. It said setting interest rates is a matter for the RBI. RBI's card directions ask issuers to prescribe an interest rate ceiling in their board-approved policy, in line with other unsecured loans, and give no number. The rate printed on your key fact statement is the rate you pay.
When it does not matter
If you pay the total due by the due date every month, you pay no interest on purchases, and the rate is irrelevant. Kotak's card gives up to 51 days of interest-free time on a purchase, depending on the due date. Cash advances are different: Kotak charges interest on them from the date of the transaction, with no free period.
Carrying a balance is where 42% matters. A balance you cannot clear in one cycle is usually better moved to something cheaper, which means a personal loan or an overdraft rather than another month at this rate.
Your next step
Find the key fact statement for your card and write down three things: the monthly rate, the APR, and the rule for the minimum amount due. Then run your actual balance through the credit card payoff calculator at that rate. If you carry a balance most months, cutting your credit card charges lists what else is worth checking.
Sources
- Kotak Mahindra Bank: Key Fact Statement, White Signature Credit Card
- RBI: Master Direction on Credit Card and Debit Card, Issuance and Conduct
- Verdictum: Hongkong and Shanghai Banking Corp Ltd v Awaz, 2024 INSC 1044
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