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How Credit Cards Make Money?

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Banks offer credit cards with varied credit limits based on the income and credit score of an applicant. Credit card spends attract interest if the cardholder fails to pay the dues in full. The interest is levied at 2.5%-3.5% per month, accumulating to 30%-45% a year. Even when you withdraw cash from credit card at ATMs, the interest gets levied at very much the same rate. However, the interest accrues from the moment you withdraw cash unlike a retail purchase wherein a cardholder is entitled to an interest-free credit period of 20-50 days.

Often credit card purchases above the specified limit are converted into Equated Monthly Installments (EMIs) for tenures ranging from 3-24 months. You can convert the purchases into EMI both at the time of the transaction and afterward. For the latter, however, it is required that the gap between the date of the transaction and the date of EMI conversion must be within 20-60 days. You need to check with your lender as to how much a gap it can grant for the conversion of the transaction into EMI.

The rate of interest on EMI conversion can be anywhere between 13%-18% per annum. The conversion of outstanding into EMI can come with a processing fee equivalent to 1%-2% of the outstanding amount.

The late payment, if happens, can attract a penalty of ₹100-750, depending on the pending due amount.

It was all interest that banks can earn on credit card purchases. But the earning does not stop here. In fact, banks earn commissions on card purchases made online or offline. Banks forge tie-ups with both online and offline merchant partners, wherein you can use the credit card to make straight purchases or redeem reward points for gifts or other spends. Whatever you do, banks would get their due share of commission from the merchant partners.

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Personal Loan Interest Rates July 2019
Bajaj Finserv10.99% - 16.00%
Fullerton India14.00% - 33.00%
HDFC Bank11.25% - 21.50%
ICICI Bank10.99% - 18.40%
IndusInd Bank10.99% - 16.00%
Kotak Bank10.99% - 20.99%
RBL13.00% - 18.00%
Standard Chartered Bank11.50% - 18.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates July 2019
State Bank of India/SBI8.50% - 9.20%
HDFC8.55% - 9.55%
LIC Housing8.60% - 9.15%
PNB Housing Finance9.05% - 12.00%
Piramal Capital & Housing Finance9.00% - 9.10%
Tata Capital9.20% - 9.35%
ICICI Bank9.05% - 9.30%
Bank of Baroda8.70% - 9.70%
Axis Bank8.85% - 9.10%
Citibank9.00% - 9.85%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank8.90% - 8.75%
DHFL9.05% - 9.95%
Reliance Home Finance8.75% - 14.00%