The Reserve Bank of India raised the repo rate by 25 basis points to 5.50%, its first increase since February 2023. While the move can affect borrowing costs across the financial system, a repo-rate hike
does not automatically mean your credit-card interest rate will rise by 25 basis points.
So, what actually changes for someone who uses a credit card? News18 explains.
Does RBI Rate Hike Directly Increase Your Credit Card Interest?
Not automatically. Credit-card interest rates are set by individual card issuers and are governed by the terms and conditions of the card. They are not simply reset by adding the RBI’s repo-rate change. Therefore, if the RBI raises the repo rate by 25 basis points, it does not mean your credit-card interest rate will immediately increase by 25 basis points. Cardholders should check the interest rate applicable to their particular card rather than assuming that the RBI’s move will be passed on in full.
What If You Pay Your Credit Card Bill In Full?
For consumers who pay the entire outstanding amount by the due date, the repo-rate hike does not mean they suddenly start paying interest on their purchases. The bigger concern is for people who do not clear their full bill and carry an outstanding balance from one billing cycle to the next.
What If You Carry An Unpaid Balance?
This is where credit-card users need to be more careful. If you don’t pay the total amount due, interest can be charged on the outstanding balance according to the terms of your card. Credit-card borrowing can already be considerably more expensive than many other forms of borrowing. A repo-rate hike does not automatically increase that rate but consumers carrying balances should keep an eye on any communication from their card issuer about changes to applicable charges or interest rates.
Will Your Minimum Payment Increase?
Your minimum amount due is determined according to the terms of your credit-card agreement and the transactions and outstanding balance on the account. It should not be assumed that a 25-basis-point repo-rate increase will automatically result in a corresponding increase in your minimum payment.
What About Credit Card EMIs?
If you have converted a credit-card purchase into an EMI, the impact depends on the terms of that particular EMI facility. Some EMI arrangements have a fixed interest rate, while the terms can differ across issuers and products. A repo-rate hike therefore does not automatically mean every credit-card EMI will become more expensive. Check the applicable rate and terms before assuming that your EMI will change.
Should Credit Card Users Worry?
For people who pay their credit-card bill in full every month, the immediate impact of the repo-rate hike is limited. For those who regularly carry unpaid balances, the RBI’s rate decision is a reminder to pay close attention to the cost of credit and the terms offered by the card issuer.
