Facts about loans and credit card?

You take a ₹ 1 lakh loan at 14% p.a. for 1 year. How Much interest will you pay? It's not ₹14000, you
would pay ₹7,745. Banking products can be complicated. here I am going to talk about loans and
credit card.

Interest on loans.

No banks or NBFC calculates loans on simple interest. they follow a calculation mechanism called
'reducing balance'. Mathematically, an 8.5% 'Simple Interest' loan = a loan at 14.88% 'reducing
balance'. complicated right? Let's understand with example.

Assume you have a ₹1 lakh loan for one year at 8.5%. Your EMI = ₹8,722 ( ₹8,014 principal + ₹708
interest). After the 1st EMI, your outstanding will reduce to ₹91,986. In the 2nd month, the bank will
charge interest on the balance amount. So, your interest keeps falling every month.

Interest On Credit Cards.

Credit cards can be trickier than loans. How? Well, most credit cards don't charge you any interest
for 45 days. After that, there's a monthly interest rate of 3-4%. but there's baffling fact.

If you have an outstanding amount after the due date, you don't get the 45-day interest-free period.
let's take an example.

Let's say ₹50,100 was due Sep 1. You paid ₹50,000 and left ₹100, thinking the interest won't be
much. Well, you are in for rude surprise. Next month, you use the card for say, another ₹30,000. So,
your total outstanding now is ₹30,100. The credit card company will charge you monthly interest on
entire amount. Suppose monthly interest rates are 3.5%. You will pay ₹1,054 in interest. But that's
not all. You need to pay GST on Interest. At 18%, the GST will be ₹190.

So, your additional payment will be ₹1,244 only because you didn't pay ₹100. Thus, always pay in
full.