So you finally decided to get your very first credit card and you are excited to use it for shopping galore to get cashbacks, rebates and rewards- the perks only the majestic card can provide. However, before you sign the thin line to finally get your card, you must fully understand the fine prints. Do you know how your credit card actually works?
If you are walking blindly in a narrow alley, most probably you will end up hurting yourself since you don’t know where you are going, the same goes with using a credit card. Without fully knowing how it works, you can’t enjoy its benefits in full and you will even waste your hard earned money. However complicated it may seem, never skip reading the credit card’s fine prints.
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J.D. Power Reports conducted a study in 2015 and discovered that 85% of Credit Card primary holders do not understand the terms of their credit cards. Moreover, they are not fully satisfied with their credit cards, unlike those who know how to use its full potential.
Interestingly, Singaporeans are known to be travel-savvy, yet the study reveals that the main part they do not understand in the fine prints is the section about the foreign currency and the transactional fees. Added with the complexity of the rewards program, most people just focused with the perks, especially the Cashback reward.
To quickly understand how your credit card works, you must know the usual four parts of the fine prints.
Foreign Transaction Fees
When you pay for the signatured shirt you bought in Thailand your mind hurries with converting the actual price in Singaporean Dollars, then you will be surprised why it didn’t match your bill. When you use your credit card in another country, the amount charged by the merchant is first converted to US Dollars before it gets converted to Singaporean Dollars. The conversion will largely depend on the on prevailing wholesale interbank rates and government-mandated rates.
Aside from the uncertainty of the conversion amount, your bank will charge you with a transactional fee which is usually 1% of the purchased amount. Then you will also be charged by Visa, MasterCard or Amex according to its own charge system. This is the reason why you will be charged higher than expected.
Conditions for Getting Rewards Points
Don’t get excited with rewards points yet. First, you have to know how many points you will earn in every dollar you spend. Different cards have its own terms and if you do not understand it, then you might lose some points you could have been accumulating.
Some cards require you to spend on their specific partnering merchants, and others even double your points according to their terms. It is recommended to watch out for seasonal promos especially during holidays. Though it seems easy, do not get carried away with collecting rewards points, you also have to check the maximum number of points you are allowed to accumulate within a year. Make sure the rewards and freebies you earn suit your interest and lifestyle to be able to enjoy the perks. Though you may have accumulated a lot of points, you can only redeem those which are included in the bank’s rewards catalogue. Banks have different redemption schemes such as a required number of points before you can get your reward. The same goes with high cashback rate.
For example, UOB requires their holders to earn 750 points to avail a $10 voucher. ICBC, on the other hand, requires 6000 points in exchange for its $10 voucher.
Credit card holders are given grace periods for them to pay their bills without getting charged with an interest rate despite missing the scheduled payment date. DBS gives a 20-day grace period while others give more. Also, if you failed to pay the full amount in time, you will not be charged with any interest. This is why you have to know your credit card’s grace period.
You have to be careful when calculating the charged interest rate. It is better to depend on the effective interest rate per annum instead of the monthly rates to be more accurate. If a credit card advertises 25% per annum, your monthly surcharge will be 2.08%. Say if your credit card payment is S$2,000 due on October 5th but you missed it, you are going to be charged with a daily interest of 25% per annum.
To get the daily interest, you have to divide the 25% by 365 days. This means that your daily interest is 0.068%. Multiply the total amount of bill by your daily interest and you will get the additional fee you gave to pay because you failed to pay on time. If you failed again, you have you multiply 0.068% to your new outstanding balance, then add it up again. This only applies if you are able to pay the required minimum payment.
If you failed to pay the required minimum payment, the interest rates on your credit card increases by 4% per annum (25% + 4% = 29% will be your new interest rate).
- Credit card payment is S$2,000 due on October 5th but you missed it.
- You are going to be charged with a daily interest of 25% per annum
- 25 divided by 365 days = 0.068% will be your daily interest
- S$2,000 x 068% = S$136
- You have to pay S$2,136 on October 6th
- If you missed again: S$2,136 x 068% = S$145.25
- You have to pay S$2,281.25 on October 17th
In case you need to make an immediate payment in cash, you can get the best personal loan from Cash Mart.
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