Anyone know how interest on credit cards work?

[xrapidx]

I haven't been settling the full amount on my credit card each month due to large renovations I did on my house last year, R90,000 odd.

So - now SARS paid me, and I settled the full outstanding amount before the due date.

Yet I was still charged quite a large amount of interest, almost the same as the previous month.

My understanding was that if you pay the full outstanding amount on your statement before the due date - you don't pay interest.

 

[DJ...]

My understanding was that if you pay the full outstanding amount on your statement before the due date - you don't pay interest.

Not as far as I'm aware.

You only have 30 day interest-free credit so all new purchases on a credit card in a month are interest-free if you pay the full outstanding amount each and every month...

 

[noxibox]

Yes, you'll still pay interest on the older outstanding amount.

 

[zippy]

Let me give you some free advice.

If you don't understand credit cards, do not get one. Get rid of it.

This goes for any financial product.

Phone your bank and ask them. There may be certain terms which make your credit card slightly different, but generally, you only pay interest on credit card if you don't repay all the purchases you made within x days. Note, I am talking about the purchases you made, not the balance. I.e. If you payment date is the 25th of each month and it covers purchases up to the 15th, then any purchases you made on say, 10th, must be repaid by the 25th. Purchases you made after 15th, say on the 20th, only need to be paid by the following 25th. This is where it gets complicated as keeping track is difficult for most people. And this is where banks make a lot of money. Out of people's confusion.

The statement should always reflect the amount you pay to avoid interest. That's required here in the UK. Can't remember if SA banks show it.

Edit: it's important to realise that the interest starts building from the date of purchase. Think of it as they "write off the interest" if you pay early.

 

[xrapidx]

But everything is settled? So what am I paying interest on?

 

[xrapidx]

Phone your bank and ask them.

You try deal with ABSA.

The statement should always reflect the amount you pay to avoid interest. That's required here in the UK. Can't remember if SA banks show it.

Thats exactly what I did.

 

[Fudzy]

Were you drawing cash off the CC?

 

[zippy]

You try deal with ABSA.



Thats exactly what I did.

I think you are being ripped off. I had a credit card in SA many years ago. FNB. A ripoff. I haven't owned one since. Get rid of it. It's the worse credit option out there.

 

[DJ...]

But everything is settled? So what am I paying interest on?

AFAIK the outstanding amount on your statement is the outstanding amount at the date of statement. Therefore you will pay interest between the statement date and payment date for debt that doesn't fall within the 30 day interest-free window. I'm not a banker but it makes sense to me...

 

[xrapidx]

Were you drawing cash off the CC?

Nope - I don't even have the pin for drawing cash, and no petrol card linked either - its purely used for credit card transactions.

I think you are being ripped off. I had a credit card in SA many years ago. FNB. A ripoff. I haven't owned one since. Get rid of it. It's the worse credit option out there.

The whole reason I have it is to use the credit each month and leave the cash in my bond until the due date... I only used it now for renovations as this lovely bank wanted to increase my interest on my bond by 1% for extending it by R90,000 to do the renovations.

AFAIK the outstanding amount on your statement is the outstanding amount at the date of statement. Therefore you will pay interest between the statement date and payment date for debt that doesn't fall within the 30 day interest-free window. I'm not a banker but it makes sense to me...

Thats not correct, and you have 55 days interest free credit on a credit card, not 30.

 

[gnomez]

Credit Cards = Evil and interest is compound :<

 

[noxibox]

I think you are being ripped off. I had a credit card in SA many years ago. FNB. A ripoff. I haven't owned one since. Get rid of it. It's the worse credit option out there.

Credit cards are excellent if you use them correctly. Definitely not a rip-off when used properly.

But everything is settled? So what am I paying interest on?

Yes, but was everything settled the previous month? You carry on paying interest on that portion.

Phone your bank and ask them. There may be certain terms which make your credit card slightly different, but generally, you only pay interest on credit card if you don't repay all the purchases you made within x days. Note, I am talking about the purchases you made, not the balance. I.e. If you payment date is the 25th of each month and it covers purchases up to the 15th, then any purchases you made on say, 10th, must be repaid by the 25th. Purchases you made after 15th, say on the 20th, only need to be paid by the following 25th. This is where it gets complicated as keeping track is difficult for most people. And this is where banks make a lot of money. Out of people's confusion.

The statement should always reflect the amount you pay to avoid interest. That's required here in the UK. Can't remember if SA banks show it.

Edit: it's important to realise that the interest starts building from the date of purchase. Think of it as they "write off the interest" if you pay early.

The last purchase date on any statement will always be around 25 days from the payment due date. They close off the billing period, send you a statement which you then have 20+ days to pay. That's how the banks come to their up to 55 days interest free.

South African credit card statements have always shown the minimum payment, the full amount due and the due date as long as I've been using credit cards. No-one can go wrong in that area. The only thing that could catch someone is that the cut-off date for each billing period is not necessarily the same each month, so it is possible to make a purchase on say the 6th, expecting it to fall into the next biliing period, and thus having insufficient funds to pay the full amount due.

 

[xrapidx]

Credit cards are excellent if you use them correctly. Definitely not a rip-off when used properly.

Agreed.

Yes, but was everything settled the previous month? You carry on paying interest on that portion.

Nope - but surely the interest shouldn't be almost the same as the previous month? I actually have an email from one of my previous bankers stating that if you settle the full amount you don't pay interest, even if you didn't settle it fully the previous month, I actually had this exact question to him last year as I accidentally missed the payment date by a day. Now - as he is a previous banker, and this being ABSA, what he said is irrelevant, and he won't be held accountable for it

The last purchase date on any statement will always be around 25 days from the payment due date. They close off the billing period, send you a statement which you then have 20+ days to pay. That's how the banks come to their up to 55 days interest free.

Exactly how it works.

 

[noxibox]

Thats not correct, and you have 55 days interest free credit on a credit card, not 30.

Up to 55 days.

But let's say I spend R5000 this month, and pay only R2500, then the next month I again spend R5000, but this time I settle everything. I'll pay interest on the full R5000 in the first period, and interest on the outstanding R2500 in the second period. If you don't settle the full amount you get charged interest on the entire amount regardless of how much you pay in. The next month they charge interest on whatever was still outstanding. This is where people really screw themselves with credit cards.

 

[Dolby]

I think interest is calcualted daily and compounded monthly.

So you may have a balance on it for the 1st - 16th of the month before clearing - but you'd still need to pay interest calculated for the 1st 16 days - even thuogh there is no balance now. I'm not sure why it's almost the same as last month though?

Unless perhaps it's got something to do with the statement date?

 

[DJ...]

Up to 55 days.

But let's say I spend R5000 this month, and pay only R2500, then the next month I again spend R5000, but this time I settle everything. I'll pay interest on the full R5000 in the first period, and interest on the outstanding R2500 in the second period. If you don't settle the full amount you get charged interest on the entire amount regardless of how much you pay in. The next month they charge interest on whatever was still outstanding. This is where people really screw themselves with credit cards.

Precisely...

 

[MR.C]

Check your statement. I get charged deposit fees, monthly card fees. There interest but you also get charged the interest upon interest which accumulates very quickly, especially since your amount is like R90,000.

 

[xrapidx]

Check your statement. I get charged deposit fees, monthly card fees. There interest but you also get charged the interest upon interest which accumulates very quickly, especially since your amount is like R90,000.

The amount of R90,000 was awhile ago... I'd paid most of it - but this month settled the full outstanding amount.

 

[xrapidx]

Up to 55 days.

But let's say I spend R5000 this month, and pay only R2500, then the next month I again spend R5000, but this time I settle everything. I'll pay interest on the full R5000 in the first period, and interest on the outstanding R2500 in the second period. If you don't settle the full amount you get charged interest on the entire amount regardless of how much you pay in. The next month they charge interest on whatever was still outstanding. This is where people really screw themselves with credit cards.

Yeh - I realize up to 55-days depending on when you purchase - but definitely not fixed at 30.

I'm assuming now when I settle the full amount again next month there should then be no interest? Full outstanding statement amount two months in a row.

 

[noxibox]

Nope - but surely the interest shouldn't be almost the same as the previous month? I actually have an email from one of my previous bankers stating that if you settle the full amount you don't pay interest, even if you didn't settle it fully the previous month, I actually had this exact question to him last year as I accidentally missed the payment date by a day. Now - as he is a previous banker, and this being ABSA, what he said is irrelevant, and he won't be held accountable for it

I might be off on exactly when the interest accrues, but I've seen this on people's statements many times - interest for both months. What they don't normally say on the statement is exactly when it accrued.