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13 Jul

Credit card’s 20-day grace period

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I was deeply confused by recent announcement of the removal of 20-day interest free period on credit cards, so I went on net to search for more info. I thought some of you might also be interested to know. Please correct me if I interpret it wrongly.

Attached is the info given by HSBC, which in summary:

Those who settle full payment before due date would enjoy 20-day interest free period on the new purchase.

However the above DOES NOT mean no interest before the due date. If you settle exactly on the due date, you will likely have to pay interest, since most banks’ due date is one month from the statement date.

For example, supposedly your statement date falls on the 30th of every month, and you made a purchase on the 1st of this month. When you receive your next statement, there is already a 10-day interest imposed on your account, being 30 – 20 = 10. When you “pay on time” before the due date, i.e. on the 30th of next month, there will be a 40-day interest incurs to your account.

Let’s see how much is the interest. For every RM1000 spent, the “pay on time” interest will be:

1000 x 0.15 x 40 / 365 = RM16.44

Repeating the above for 12 months, you will have to pay an extra of RM197.30 per year for PAYING ON TIME.

For those who do not make full payment on time, you DO NOT get 20 days interest free period. Failing to settle your bill on time means your next purchase would be charged as soon as the transaction has gone through. The banks will be laughing all the way.

For whatever reasons they claim during the press conference, Bank Negara must have collected enough statistic data, analysed and deduced that this is easy money for them, as most people would likely to pay after the grace period.

My best recommendation to those who use credit cards is to check your credit card accounts and make full payment every TWO weeks to ensure the banks do not make any extra income from our hard-earn money. This is only likely if you have internet banking facility.

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