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Business News/ Money / Calculators/  De-jargoned: Interest-free payment holiday
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De-jargoned: Interest-free payment holiday

It's a facility offered only by credit cards and it gives you more time to make a particular payment

Ramesh Pathania/MintPremium
Ramesh Pathania/Mint

What is it?

As the name suggests, interest-free payment holiday, a facility offered only by credit cards, gives you more time to make a particular payment. During this period, you don’t need to pay the total amount due, the minimum amount due or any amount in part.

Banks state in their email advertisements that this is generally offered to people who don’t have any dues on their card.

Currently, there is no charge for this facility.

How does it work?

A majority of credit cards have a payment period of 45-55 days. For instance, if you swipe a credit card on 11 June, your bill will get generated on 12 July and your payment due date will be 30 July. So here the window between the actual spending date and the payment due date is approximately 50 days. Almost all banks offer similar payment windows of 45-50 days. In case you fail to pay on the due day, interest in the range of 22-44% per annum will be levied; the rate varies between banks. For instance, HDFC Bank Ltd charges a rate of 3.25% per month, while Axis Bank Ltd charges between 1.95% and 2.95% per month, as per their websites.

In the example mentioned above, if you get a three-month interest-free payment holiday on your credit card, your bill will be generated in the 11 October statement instead of 11 July.

Typically, this offer is applicable only on retail transactions. It is not valid on spending such as cash withdrawals, cash on call, equated monthly instalments (EMI), balance transfer, balance transfer on EMI, jumbo cash loan. In case you have signed in for autopay, you will not be able to avail this facility. If you cross your card limit, you will be disqualified from the offer.

Enrolling for the facility

There is no paperwork required to enrol for the offer. Usually, you get an SMS/e-mail alert from your bank. If you decide to opt for the payment holiday, then simply delay paying your bill by that period. If you want to stay away from this, just keep paying your bills on time. However, interest will be charged on non-payment of earlier bills (those generated before this offer starts) even during the payment holiday period.

What it means for you

Though there are no extra charges attached to the facility as of now, remember than bank products evolve over time; so you need to keep track of the cost. Before signing in for the offer, call up the customer care and ask specific questions on processing charges, service tax and the due date of the offer.

As of now, it looks like the facility is aimed to attract more customers, which will help banks improve their credit card transaction volume. Also, if you are someone who is in the habit of paying your credit bills on time each month, don’t delay payment just because there is such an offer. There are always chances of falling into a debt trap.

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Published: 19 Aug 2013, 07:51 PM IST
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