The Reserve Bank has issued new instructions for banks and card issuers regarding payment of credit card bills. Under this, it has been said that the calculation of Minimum Amount Due should be done in such a way that there is no negative amortization.
The Reserve Bank has issued new instructions for banks and card issuers regarding the payment of credit card bills. Under this, it has been said that the calculation of Minimum Amount Due should be done in such a way that there is no negative amortization. RBI has said in its directive that unpaid charges, levies and taxes will not be compounded for interest. Explain that the Reserve Bank had implemented this rule from 1 October 2022.
According to Sachin Vasudev, Director and Head of Cards, Paisabazaar, under the new rule, credit card issuers will have to fix a minimum amount so that the total outstanding amount can be paid within a reasonable time. Also, finance charges, penalties and taxes applicable on the outstanding amount will not be capitalized in the next statement. It means to say that once the outstanding amount is paid, the rest of the charges will not have to be paid.
How will the new rule related to credit card work?
If a person pays only the minimum amount due on a credit card bill, interest will be charged on the outstanding amount and all new transactions until the previous due amount is paid in full. The interest calculation on the credit card outstanding amount will be something like this. (number of days counted from the date of transaction x outstanding amount x interest rate per month x 12 months)/365.
Understand with example:
Let us assume that your credit card bill comes on 10th of the month. But you spent Rs 10,000 on the first of the month. Your bill due date is 25th of the month and you pay minimum due amount of Rs.500. Now interest for the next bill will be calculated on the outstanding amount of Rs 9,500 for 40 days, that is, from the date of expenditure till the date of the second bill.
Expense. If you pay only the minimum amount every month, interest will be calculated on interest every month. In such a situation, it may also happen that due to high interest, in the coming months, the amount of interest will be more than the minimum amount.
