Cash credit interest calculator

A cash credit limit is priced on the amount drawn, yet its real cost sits above the card rate, because renewal and processing charges apply to the whole sanctioned limit while only part of it is ever used. This calculator works out the monthly interest, the total cost over the tenor and the effective annual cost on the funds actually used, then prices the same usage as channel finance. Every rate on this page is entered by the user, with the prefilled figures serving only as a worked illustration.

The calculator

How the math works

1. Average funds in use = sanctioned limit × average utilisation.
2. Monthly interest = funds in use × annual rate ÷ 12, treating utilisation as a flat average of the daily drawn balance.
3. Total cost over the tenor = monthly interest × months + the renewal and processing fee, with a percentage fee applied to the full sanctioned limit and charged once in the tenor.
4. Effective annual cost = total cost ÷ funds in use, annualised where the tenor differs from 12 months.
5. Channel finance comparison = the entered rate applied to the same funds in use for the days each drawdown runs, on a 365-day year, with no renewal fee on an unused limit.

Banks debit live accounts on daily products, so a statement figure will differ where drawings swing hard inside a month. The flat-average treatment is the standard planning simplification and the difference stays small at realistic swings.

Worked example: the ₹50 lakh benchmark

1. Average funds in use: ₹50,00,000 at 50% utilisation puts ₹25,00,000 to work.
2. Monthly interest: ₹25,00,000 × 11% ÷ 12 = ₹22,917.
3. Interest for the year: ₹25,00,000 × 11% = ₹2,75,000.
4. Renewal fee: 0.5% of the ₹50,00,000 limit = ₹25,000, charged on the full limit whatever the usage.
5. Total annual cost: ₹2,75,000 + ₹25,000 = ₹3,00,000.
6. Effective annual cost: ₹3,00,000 ÷ ₹25,00,000 = 12% on the funds actually used, against a card rate of 11%.

How is interest on a cash credit account calculated?

Banks charge cash credit interest on the daily closing drawn balance, never on the sanctioned limit itself. Each day the drawn balance is multiplied by the annual rate and divided by 365, the daily amounts accumulate through the month and the total is debited at month end. An account sanctioned ₹50 lakh but drawn to ₹10 lakh through a quiet month is charged on ₹10 lakh alone for those days. This calculator compresses that daily arithmetic into one average utilisation figure, which is the standard planning simplification: a limit swinging between 30% and 70% drawn across a season behaves, over a full year, close to a limit held steadily at 50%. For an exact figure on a live account, the interest certificate the bank issues each year states the amount actually debited.

Why does the effective cost sit above the card rate?

Interest applies to the funds drawn while the renewal and processing fee applies to the full sanctioned limit, so every rupee of unused limit quietly raises the cost of the rupees in use. In the worked example, the 0.5% fee on a ₹50 lakh limit is ₹25,000. Spread over the ₹25 lakh actually in use, that fee alone adds a full percentage point, which is how an 11% card rate becomes a 12% effective cost. The drag grows as utilisation falls: at 25% utilisation the same fee adds two points and the effective cost reaches 13%. Some sanctions also carry a charge on the unused portion of the limit when utilisation stays low, which pushes the gap wider still. Comparing two facilities on card rate alone therefore hides exactly the part of the cost that varies most between them.

What does average utilisation mean in this calculator?

Average utilisation is the share of the sanctioned limit actually drawn, averaged across the tenor. A trading account rarely sits at one level: drawings rise when stock builds before a season and fall as collections come in. To estimate the average on a live account, take the closing drawn balance on each month end from the statement, average the twelve figures and divide by the sanctioned limit. A dealer whose ₹50 lakh limit shows month-end balances averaging ₹25 lakh runs at 50% utilisation even if individual weeks touched 80%. The figure matters because the two cost lines move in opposite directions as it changes: interest falls when utilisation falls, while the fee stays fixed, so the effective annual cost on funds used rises as the limit sits idle. A realistic average gives a truer picture than the peak drawing.

How does channel finance price the same usage?

Channel finance funds specific purchases from an enterprise rather than a general running balance. Each drawdown is purpose-tied to an order, is disbursed against that order and closes when the cycle completes, so interest runs only for the days the drawdown stays open and the next order draws afresh. Priced this way, a dealer who needs ₹25 lakh of stock funding for 30 days pays for 30 days, with no renewal fee carried on an unused limit for the remaining eleven months. The comparison panel above applies whatever rate is entered to the same average funds in use, on a 365-day year, so the two routes can be read side by side on one basis. Whether channel finance works out cheaper depends entirely on the rates entered and the usage pattern, which is why every rate on this page is a user input rather than a quoted figure.

Which costs does this calculator leave out?

The calculator covers interest and the renewal and processing fee, the two largest items on most accounts. Four smaller items sit outside it: 1. documentation and stamp charges paid once at sanction or enhancement, which vary by state. 2. stock statement and inspection charges, where the bank debits a fixed amount for periodic verification. 3. insurance on hypothecated stock, payable to keep the security cover current. 4. charges on the unused portion of a limit, which some sanctions apply when utilisation stays below a threshold. Together these usually add a modest amount against the interest line, though on a small limit the fixed items weigh proportionately more. Reading the sanction letter’s schedule of charges alongside this calculator gives the complete cost.