Decoding the interest rates on the line of credit: What you need to know

Decoding the interest rates on the line of credit: What you need to know

12 January 2024 | By INDIE

In situations where you need quick access to funds to meet your daily requirements, a line of credit can offer the most convenient and flexible solution. You get revolving credit with a multiple-withdrawals facility and interest is charged only on the consumed credit. However, understanding the interest rates on a line of credit is crucial to making informed choices. Before you apply for a line of credit, learn about the line of credit rates and how interest is calculated to have clarity. 

Understanding line of credit and its working

A line of credit is a flexible financial tool that allows individuals to borrow funds up to a predetermined limit. Unlike traditional loans, where you receive a lump sum upfront, a line of credit provides you with the flexibility to withdraw funds as needed. This dynamic nature makes it an appealing option for those who require intermittent access to funds.

Once approved, you can draw funds up to your credit limit and as soon as you repay the borrowed amount, the funds become available again, much like a revolving credit. This revolving aspect offers convenience, but it also requires a clear understanding of the interest rates associated with the line of credit.

How is interest calculated on the line of credit?

The interest on a line of credit is usually calculated based on the average daily balance method. This involves adding up the outstanding balances for each day in a billing cycle and dividing it by the number of days in that cycle.

Here’s an example to understand this better. Say a line of credit with a limit of ₹1 lakh has an annual percentage rate of 20%.

Assuming you borrow ₹50,000 on the 1st day of the billing cycle and repay it on the 15th day, the outstanding balance for the first half of the cycle would be ₹50,000. For the remaining 15 days, the outstanding balance is zero.

The average daily balance for this billing cycle would be (₹50,000* 15 days + ₹0 * 15 days) / 30 days = ₹25,000.

To calculate the interest, you would use the formula: Average daily balance * (APR / 365) * Number of days in billing cycle.

So, in this case, the interest for the billing cycle would be ₹25,000 * (0.20 / 365) * 30 = ₹410.96.

Why INDIE offers the best line of credit

When considering the best line of credit rates, it's crucial to compare offers from different financial institutions. Factors such as the APR, repayment terms, and any associated fees should be carefully examined. And that’s where IndusInd Bank’s INDIE app comes with the best line of credit in the market with higher credit limits of up to ₹5 lakh.

Along with attractive interest rates, you get the convenience of managing your credit line on the user-friendly app interface right from application to repayment. Moreover, you get flexible tenures ranging from 3 months to 36 months to repay your bills without financial burdens. It also offers industry-first security features like a numberless debit card, dynamic PIN, and super OTP. 


Understanding the interest rates on a line of credit is an essential step towards making informed financial decisions. In your financial journey, always strive to secure the best line of credit rates, ensuring that you not only have access to funds when needed but also do so in a cost-effective manner. With the INDIE app, secure a line of credit that aligns with your financial requirements. Download the app today!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.