There is nothing like a free lunch, nor a free credit card!
It was a dull grey morning in Kolkata. I was lazily leafing through the last pages of the Sunday newspaper. And suddenly I received an email. It was vibrant, colourful and promising. It spoke of “reward points” and “dining privileges” and “surprise gifts” previously unheard of. And offered it all for free. The only task that was expected of me was to get a credit card.
The credit card is nowadays synonymous with urban life. From teenagers to senior citizens, everyone is carrying one or more of them, filled with promises of discounts and convenience. However, most of the advertisements regarding the credit cards carefully skim over the sticky part of the deal. That is, the interest attached to it. The charges attached to your credit card may turn it into your own personal devil, unless you know the absolute nitty-gritty of it.
Imagine this: your credit card outstanding was Rs. 1,50,000. You paid the minimum installment of Rs. 18,000. Without using the card in the subsequent month, the outstanding is Rs. 1,42,000. This is inspite paying Rs. 18,000 last month. How did that happen? – Due to ‘hidden’ finance charges!
Broadly, the credit card finance charges represent the interest which is charged on outstanding credit card balances. These finance charges are one of the most important terms of any credit card, and necessarily require more attention as compared to other features such as joining fees, annual fees, renewal fees, etc.
The finance charges are paid based on a monthly percentage interest rate (normally about 3% per month) calculated on an average daily balance method for most credit cards in India. This is represented by the formula below:
Interest calculated = [(outstanding amount x rate per month x 12 months) * number of days] / 365
Normally, these cards come with a grace period, also called interest free period, during which the balances on credit card do not attract finance charges provided the credit card holder repays the entire outstanding amount in full with the monthly credit card bill. The grace period varies with every credit card and usually is between 20 to 60 days.
a Platinum Card has an interest-free credit period of 55 days. So, a credit card holder whose billing date falls on 4th of the month can spend on his credit card from 5th April to 4th May, and his bill will be generated on 4th May. His payment due date will be 29th May. Therefore a purchase made on 14th April will have a credit period of 46 days, while a purchase made on 2nd May will have a credit period of 23 days.
If a credit card holder doesn’t pay his bill completely before the due date, his entire outstanding balance will attract interest rate and all new spends on the credit card will also attract interest rate until the balances are repaid in full. This essentially means that if a credit card holder doesn’t repay his outstanding balances in full every month, there is no grace period for him.
Credit card payment defaults attract an interest rate of approximately ranging from 30%-48% per annum. On the other hand, a personal loan can be availed for an interest rate approximately ranging from 12% to 27% per annum. Before swiping that card, this alternative definitely deserves a thought! Take precautions to ensure that your management of this plastic money does not lead to a financial disaster.
AS A CUSTOMER – Have you ever been charged unfairly? Comment to let us know how you overcame this or to teach these companies a lesson!
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