Do not get caught in the vortex of revolving credit when it comes to your credit card. For, you may end up paying Rs156 for every Rs100 that is overdue on your card.

Keeping pace with rising rates, the interest rate on credit card dues has moved up every quarter in the past year to 56% at present.

Are you now wondering how this slipped past your eye?Banks issuing credit cards often quote a particular rate for the mandatory disclosure of the Annualised Percentage Rate (APR) but apply it differently while calculating the outstanding.

The calculation on credit card dues is done on the basis of the APR, which currently ranges from 37-42%, depending on individual banks and credit scores of customers. The annual rate is divided across the year. The current monthly compound interest rate ranges from 3.1% to 3.5%. An additional service tax of 10.3% is levied to arrive at the outstanding.

Normally, banks issue a monthly interest rate; but how they compound it for every cardholder depends on the banks. The rates vary across cards and banks. As they publish monthly and not yearly figures, if the credit taken is not repaid in time, the compounding effect can be costly.

“The current APR, 42%, is shocking compared to the interest rates on home, personal, educational and car loans,” Deepak Bhalla, a resident of Vashi, said. “By the time the bill reaches me with the monthly compound interest and service tax, the rate goes up to 56%.”

Justifying the high interest rate on credit cards, a spokesperson of a leading multinational bank said, “A key parameter while deciding the rate is incidents of default, if any, by a cardholder.” He said banks structure the rates in such a way that the net yield from cards minimises losses on account of defaults. “But incentives such as reward programmes and gifts are often woven into credit card packages for deserving customers.”

Experts say the prohibitive rates should act as a deterrent. “At best, one should use the credit card for cash or overshoot the repayment by a week. For a longer period, one should rely on some other source and credit card should be the last resort,” Harsh Roongta, CEO of apnapaisa.com, said.

Suresh Sadagopan, who runs Ladder 7 financial advisory services, said the revolving credit was never a good option. “All banks disclose their interest rates and still clients fall for it,” he said. “Banks like ICICI and HDFC disclose what they charge. Banks are charging 42% interest on average, which is extremely high. It is shocking how the RBI lets this happen.”