The monthly charge: balance × monthly rate
Indian credit cards typically quote a monthly finance charge rather than an annual one — commonly around 3-3.5%. For a ₹50,000 outstanding balance at 3.5% per month: ₹50,000 × 3.5% = ₹1,750 charged that month.
Why the annualized rate is higher than "monthly rate × 12"
Simply multiplying 3.5% by 12 would give 42%, but the real annualized figure is 51.11% — higher, because unpaid interest compounds month over month rather than being charged separately on the original balance each time. The correct formula is (1 + monthly rate)^12 − 1, not monthly rate × 12.
A slightly lower rate, a meaningfully different result
The same ₹50,000 balance at 3% per month instead of 3.5% charges ₹1,500 that month (₹250 less), and annualizes to 42.58% instead of 51.11% — a half-percentage-point difference in the monthly rate compounds into a nearly 8.5-percentage-point difference in the annualized figure.
Why this interest keeps recurring
Unlike a fixed-tenure loan, this interest charge repeats every month for as long as any balance remains outstanding — which is exactly why how much is actually paid each month matters so much, as the companion article on minimum payments explores.