Friday, November 29, 2013

Credit Card Interest Rates: What You Need to Know

This is a guest post and the opinion is strictly from the writer himself.


Credit cards allow you to pay for everything you need: basic necessities like food, school materials, and gas. You don’t even have to carry money around. Just a piece of plastic and you’re all set. You can use it to pay not just for anything, but to almost anywhere in the world through online shopping.

There are some credit card owners, however, who apply for credit cards so they can buy big purchase-items such as a van, or maybe a trip to Europe, or just about any other thing that usually takes the average consumer months to save for. Of course, when you borrow money through credit card, you will be charged with interest rates by your bank.

Here is a lowdown on what you need to know about credit card interest rates:

1.     APR (Annual Percentage Rate)

This is the charge you get when you fail to pay your monthly charges in full. Not paying your credit card balance for the month will result in your balance being carried over to the next month. When this happens, you will incur interest charges for the outstanding balance you did not settle last month. The APR can rapidly increase without you realizing it when you’re not careful. To prevent APR charges in the future, make sure to pay the full amount of your credit card bills every month.

2.     Annual Charges

          Credit cards will normally require you to pay a fee for each year that you use them. Some credit card companies waive their annual fees for the first year as part of their credit card promotional offer. For these types of credit cards, you can start paying when you reach the second year of use. Annual fees can cost anything from RM38 to RM800.  

3.     Balance Transfer Charges

        Balance transfer fees will be charged to you when you want to lower the interest rate you’re paying by switching to a new credit card because the credit card you currently own charges you with high interest rates. By switching to a new card, your interest rate can temporarily be turned to zero for the first year. You will also incur balance transfer fees when you own many credit cards, and you want to simplify payments for all of them. You can then pay for your outstanding balance for all your credit cards with the use of just one credit card. Balance transfer fees can charge you a minimum transaction fee of 2% or higher, as it will be based on how much balance you want to transfer. In doing balance transfer transactions, you should remember that the outstanding balance you can transfer can be limited by the credit limit capacity of your new card.

4.     Cash Advance Charges

         When you absolutely need cash, and you have no other options available, sometimes you may be tempted to make a cash advance on your credit card. This is when you withdraw cash from your credit card account thru an ATM machine. The interest rate for these kinds of transactions is normally around 4% of the cash amount you have withdrawn. It can also charge you a fixed fee for cash advances–whichever is higher. Interest rate charges for cash advance transactions are not fixed, as these can also be based on how long it will take you to settle your cash advance loan.

5.     International Transaction Charges

-          These additional fees are charged to you when you travel abroad and use your credit card to pay for meals, rides, shopping and so forth. Call your bank before traveling to learn about the international transaction charges. International transaction charges usually amount to approximately 3% of what you pay for across the seas.

6.     Overlimit Charges

     Surpassing your credit card’s limits also comes with additional charges. Although the interest rate charge is low, it is still money wasted, so better control your spending and try not to exceed your credit limit.

7.     Underpayment Charges

-        When you pay your monthly credit card fees, make sure you are paying the minimum amount required or more than the minimum amount required. Paying less than the minimum will lead to an underpayment charge. This will be added to the regular interest rates you normally incur.
Owning a credit card comes with the responsibility of paying on time and paying beyond the minimum amount required every month. Learn about all the interest rates that come with owning a credit card such as the APR charges, annual charges, balance transfer charges, cash advance charges, international transaction charges, overlimit charges, and underpayment charges so that you can avoid paying for all these in the future.

About the author:

This article was prepared by Compare Hero for Intellect Point. Compare Hero is Malaysia’s leading credit card comparison website. Compare a broad range of financial products, from credit cards to insurance plans. 


Malaysia Stock Talk said...

Not sure what is holding back Bank Negara from making it compulsory for banks and credit card companies to disclose the effective interest rate in the advertisement and brochures.

The "nominal" interest rate shown in advertisement is very misleading

Unknown said...

Very interesting looking post and I must appraise your efforts to write this post.

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