We all know credit card companies levy interest rates on every purchase we make through our credit card. But have we ever wondered why do they charge a certain percentage of interest rate? The answer is simple – for every credit we take, the bank whose credit card we own, pays the billed amount on our behalf irrespective of amount of credit taken (of course, within the credit limit printed on the card sheet). When the bank pays on our behalf, it loses something out of its budget or CRR. To maintain the loss, it charges interest rate on each and every purchase of ours.
In case we are not able to pay back the amount taken as credit within the stipulated time, the bank again monetary loss which it refurbishes with the interest rate levied as late fee. E.g., if you go for Fortune Gold Card offered by Kotak Mahindra Bank than the interest rate levied by it is 3.10% as service charges on outstanding balance. The same applies to all the other three credit cards (Trump, League and Royale) also. There are also the late payment charges which vary from Rs 350 to Rs 500. For bounced payment the charges are between Rs 300/- and Rs500/-.
The point is that when you take something on credit cards and the other person (in this case, the bank), pays off your credit, there is no harm in giving a small percentage as on credit card interest rate. Generally this interest rate amounts to very less money in terms of the credit you take.
Credit Card companies which circulate their cards in the market are regulated by RBI and so the interest rates levied by them are under considerable limits which do not pinch your pocket at any point of time. So, when it comes to interest rates levied by a credit card company, you should not raise eyebrows.
However, one should be cautious about the interest rates being levied. In fact, before taking a credit card, one must inquire about the interest rates and any other interest rates, if any. Once checked, one should compare these with the interest rate charged by other credit card companies and take the one which charges the least percentage of interest rate.