Average Credit Card Interest Rate in UAE

How Do CC Interest Rates Work?

Credit cards have a fixed annual percentage rate of interest. It determines how much you are charged on the outstanding balance each month. If you completely pay off the card balance every month, you will not be charged interest. 

Note that credit card interest is charged monthly on the unpaid balance after the due date. 

Here’s an example. 

• Total Card Bill for the Cycle - AED 5,000
• Amount Paid before Due Date - AED 3,000
• Outstanding Balance - AED 2,000
• Interest Rate - 3% p.m.

So, the month 1 interest is - 

2000 x 3% = AED 60.

The total outstanding balance, therefore, is AED 2,060. 

If you do not pay the balance in month 2, the interest is -

2060 x 3% = AED 61.80

The new outstanding balance, therefore, is AED 2,121.80. 

This implies that -

• Interest is charged only on the unpaid portion, not on the entire bill
• The longer the balance is balanced, the more interest gets added because of monthly compounding
• Even a small outstanding balance can grow rapidly if not cleared

Why are Credit Card Interest Rates High in the UAE?

Credit card interest rates are often high in the UAE because these cards are unsecured loans. It means that banks take on the higher default risk. This risk, along with 

• High demand for credit
• Major household debt, and 
• The high costs of the reward programs

Increases the interest rate. 

Another element to consider is the revolving debt mechanism. The minimum payment structure piles up the debt like a snowball, because interest is charged on the outstanding balance. 

When is the Credit Card Interest Rate Charged?

Banks typically charge interest or profit at the credit card interest rate when you do not pay the full balance by the due date. Here are some key scenarios about when the interest is charged —

• Carrying a balance 
• Missed due dates
• Cash advances
• New purchases (even when the balance is carried over)

How to Avoid Paying Credit Interest Rates?

If you want to avoid paying CC interest rates, for starters, pay your full balance by the due date each month. Apart from this, there are simple habits to eliminate interest charges. They include -

• Understanding the grace period. Usually, banks provide a grace period between the purchase date and the due date. Paying the balance in full during this period does not incur any interest. 
• Avoid cash advances. Cash withdrawals from ATMs through a credit card don’t have a grace period — they start interest charges immediately. 
• Set up auto pays. To ensure the timely payment of your balances, set up automatic payments. 
• Use 0% APR balance transfers. If you are in debt already, consider transferring it to a new card with a 0% introductory APR offer. 

Who Should Pay Attention to Credit Card Interest Rates the Most?

The following are major groups who need to monitor their credit card interest rates —

• Those carrying balances
• People with lower credit scores
• Frequent card users
• Borrowers with higher debt
• Individuals managing multiple cards simultaneously
• First-time credit card users

Do’s and Don’ts to Consider to Avoid CC Interest Rates

To make the most of your card, follow these dos and don’ts to avoid credit interest rates.

Do’s 

Use your card for -

• Rewards 
• Convenience
• Short billing cycles

Don’ts

Avoid using them for -

• Long-term borrowing
• Emergency financing without a repayment plan

Frequently Asked Questions