How to Save Interest on Credit Cards
Get ready to spend some time going through the loads of mail you get fr-om your credit card company, including your credit card bill. Soon, there will be a wealth of information printed there, including the finer points of interest calculations.
But be wary, for this could turn out to be a tough task for those not conversant with the intricacies of finance. Based on the recent notification issued by the Reserve Bank of India (RBI) to the banks issuing credit cards, there is a change that credit card customers can expect in various information related to their interest calculations.
To help credit card customers remain ahead in the game, here is a look at the finer points of interest calculation that may have been a mystery up until now.
Soon, consumers here will join several other countries in the world, as various new terms will become part of our daily usage. The most important one is the annualised percentage rate (APR) and banks have been asked to quote this rate to the consumers.
This term is calculated differently across the world but this is a new term for Indian consumers and hence, they need to be aware of what this exactly contains and how they can distinguish this from the various other rates floating around. Currently, most banks talk about the rates of interest in monthly terms and just say that the rate is 2.49% or 2.95% per month. In effect, what actually happens is that the credit card salesman or the employee manning the call center will mention the absolute rate without specifying what the rate comes to when it is annualised.
Most people fail to realise that the annual rate comes to around 36%-42% in actual terms. Thus, when the rate figure is converted into an annual figure, it increases tremendously. In order to do away with this kind of confusion, the banks will have to quote an annualised figure.
But across the world, there is no specific format for the calculation. So, even within the figure, it is important to know what has been included and what has been excluded.
Internationally, there are two major routes in which the annual rate is disclosed. The first is the simple method where the monthly rate is converted into an annual rate. Thus, if the rate for a credit card interest rate is 2.49% per month, then the annual rate will be 29.88%.
One needs to realise that this is often not the correct figure, as in most cases, the investor is being charged a compound rate of interest because the outstanding plus the interest is charged further interest. In this case, the annual percentage rate becomes the effective rate, after using the compounding impact.
The good part for the customers will be that the card companies will have to give the calculation of the APR with a couple of examples. This will ensure that customers will have a chance to know what is contained in the annual rate and what has been excluded.
Otherwise, customers could end up comparing different rates if they just tend to look at the figure and then make their decisions.
Another thing that investors have to understand is that there could be more than one APR applicable to them. This is because the rate that is charged as interest as well as the rate that is charged in the case of cash withdrawal using a credit card are likely to be different for most cards and hence, these will have a separate APR.
All the calculations above are just the rate for interest charged on the card. There could be an additional charge for an annual fee on the card. This also has to be shown prominently. Apart from these charges, when the payment in not made on time, the customer is also charged some late payment fees.
The way in which these charges have been calculated along with the exact number of days for the late payment also have to be shown. The customer currently sees just one figure of the charge and it is they whThe end result for a customer is that they have to take all these costs into consideration, while looking at their final charges. The role of the investor in checking the documents becomes even more important because the card companies cannot charge any additional expense that was not mentioned at the time of the issue of the card and getting the consent of the customer.
This will mean that the details at the time of issue of the credit card will have a lot of fine print that customers need to be aware of.
Finally, changes in the expense will have to be made only prospectively and that too after a month. The customer in this case, like in a mutual fund, would have the option of surrendering the card without additional expense. o have to do the running around, trying to find out how the charge has been calculated.http://earn-money-millions-wealth-rich.blogspot.com/
But be wary, for this could turn out to be a tough task for those not conversant with the intricacies of finance. Based on the recent notification issued by the Reserve Bank of India (RBI) to the banks issuing credit cards, there is a change that credit card customers can expect in various information related to their interest calculations.
To help credit card customers remain ahead in the game, here is a look at the finer points of interest calculation that may have been a mystery up until now.
Soon, consumers here will join several other countries in the world, as various new terms will become part of our daily usage. The most important one is the annualised percentage rate (APR) and banks have been asked to quote this rate to the consumers.
This term is calculated differently across the world but this is a new term for Indian consumers and hence, they need to be aware of what this exactly contains and how they can distinguish this from the various other rates floating around. Currently, most banks talk about the rates of interest in monthly terms and just say that the rate is 2.49% or 2.95% per month. In effect, what actually happens is that the credit card salesman or the employee manning the call center will mention the absolute rate without specifying what the rate comes to when it is annualised.
Most people fail to realise that the annual rate comes to around 36%-42% in actual terms. Thus, when the rate figure is converted into an annual figure, it increases tremendously. In order to do away with this kind of confusion, the banks will have to quote an annualised figure.
But across the world, there is no specific format for the calculation. So, even within the figure, it is important to know what has been included and what has been excluded.
Internationally, there are two major routes in which the annual rate is disclosed. The first is the simple method where the monthly rate is converted into an annual rate. Thus, if the rate for a credit card interest rate is 2.49% per month, then the annual rate will be 29.88%.
One needs to realise that this is often not the correct figure, as in most cases, the investor is being charged a compound rate of interest because the outstanding plus the interest is charged further interest. In this case, the annual percentage rate becomes the effective rate, after using the compounding impact.
The good part for the customers will be that the card companies will have to give the calculation of the APR with a couple of examples. This will ensure that customers will have a chance to know what is contained in the annual rate and what has been excluded.
Otherwise, customers could end up comparing different rates if they just tend to look at the figure and then make their decisions.
Another thing that investors have to understand is that there could be more than one APR applicable to them. This is because the rate that is charged as interest as well as the rate that is charged in the case of cash withdrawal using a credit card are likely to be different for most cards and hence, these will have a separate APR.
All the calculations above are just the rate for interest charged on the card. There could be an additional charge for an annual fee on the card. This also has to be shown prominently. Apart from these charges, when the payment in not made on time, the customer is also charged some late payment fees.
The way in which these charges have been calculated along with the exact number of days for the late payment also have to be shown. The customer currently sees just one figure of the charge and it is they whThe end result for a customer is that they have to take all these costs into consideration, while looking at their final charges. The role of the investor in checking the documents becomes even more important because the card companies cannot charge any additional expense that was not mentioned at the time of the issue of the card and getting the consent of the customer.
This will mean that the details at the time of issue of the credit card will have a lot of fine print that customers need to be aware of.
Finally, changes in the expense will have to be made only prospectively and that too after a month. The customer in this case, like in a mutual fund, would have the option of surrendering the card without additional expense. o have to do the running around, trying to find out how the charge has been calculated.http://earn-money-millions-wealth-rich.blogspot.com/
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