Interest on credit card and overdraft different?

Dolby

Dolby

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Are these interest rates calculated differently? My overdraft is at 16% (or so) and my credit card at 21% (or so). At times, I take extra money from my overdraft and plop it into my card as I thought I was saving 5% (or so).

Is this true?
 
The interest rates on yoru facilities are subject to yoru own negotiations with the Bank. Generally credit cards have a higher interest rate. The banks price for risk. Your credit card will probably have a higher credit limit than your credit card. Genrally the higher the amount, the greater the risk for the bank, the higher your interest rate.
 
But are they calculated the same? If they were both 20% and I owed the same on each, would I have the same monthly payments?
 
Not sure I really understand the question, but I think maybe you're getting confused between the two different interest rates on your credit card. If you're charged 21% when you owe the bank money on the card, you probably only get about 3% when you have surplus on the card.

Edit: ah, sorry, just read your second post. Yes, they're calculated the same.
 
You right dolby.

They are calculated the same. And you are saving by 'financing' your credit card with your overdraft..
 
Dolby said:
Are these interest rates calculated differently?
Click to expand...
Yes, just realize that there is compounding in play here. i.e. Two periods of 10% interest is not equal to one period of 20%.;)

I'd say using the O/D to pay off the CC makes sense. Would be better paying off with cash, but thats not always possible.
 
Basically each one of the financial instruments available to individuals carries a different rate depending on the term of the loan and the risk associated with it. In general(big generalisations coming) the rates would rank as follows:

Credit Card (Prime +7%)
Overdraft (Prime +2%)
Short term loans (Prime)
Long term loans (Prime -2%)

These rates vary depending on the risk profile of each individual, the amount of trouble they went to in negotiating with their bank and the amount of security offered to cover the loans.

In paying off your debt it would normally be best to use surplus cash to do so. Unless you can invest your surplus cash at a rate that is higher than the rate of the debt your paying off.

Should you not have surplus cash available it COULD be beneficial to switch your debt to another instrument, like using your overdraft to pay off your credit card. In these cases it is important to note however that some banks charge additional fees in these circumstances. Overdrafts from Standard Bank for example carry a R18pm service fee while long term loans(like bonds) have initiation fees and additional administrations fees for example.
 
Hi guys

i was told that the Overdraft interest rate is an Annual rate?

What i'm confused about still is how is an Overdraft interest rate calculated DIFFERENTLY to a credit card interest rate?

For example, if I am R10,000-00 Overdraft and my interest is 15%, can I assume that the interest would be R1500?
 
TheTwo said:
Hi guys

i was told that the Overdraft interest rate is an Annual rate?

What i'm confused about still is how is an Overdraft interest rate calculated DIFFERENTLY to a credit card interest rate?

For example, if I am R10,000-00 Overdraft and my interest is 15%, can I assume that the interest would be R1500?
Click to expand...

No.

it will be calculated daily or weekly or monthly.
 
The confusion for me is because with Credit Cards it's payable over? 24 months?

with an OD it seems you can just keep paying the OD amount over what term???

Not sure how the interest is then calculated and accrued
 
ToxicBunny said:
No.

it will be calculated daily or weekly or monthly.
Click to expand...

Whaaaat? SO if I dont try to settle the OD and they keep taking off the OD amount, on a R10,000-00 OD the amount I pay back could be WAAAY more than R1500?

Sorry but I am quite slow with these things
 
Interest on credit cards and overdrafts are calculated on the daily balance and added to the account at the end of the month. The interest rates are quoted on an annual rate.
 
All quoted rates would be annual rates, but interest would be calculated daily based on your outstanding balance on that day.

All things being equal (we are excluding fees, interest free periods on credit cards - which largely wouldn't apply if you are transferring out of your account) you could save by financing one debt with another.

EG, you owe 10,000 on your CC and 10,000 on your OD. Interest rates are 16% on your OD and 21% on your CC.
Your daily interest on your credit card is 21% * 10,000 / 365 = R5.75
Your daily interest on your overdraft is 16% * 10,000 / 365 = R4.38
A total of R10.13

If you just owed 20,000 on your overdraft, your daily interest would be R8.76 a saving of R1.37 a day compared to the R10.13.
 
TheTwo said:
Hi guys

i was told that the Overdraft interest rate is an Annual rate?

What i'm confused about still is how is an Overdraft interest rate calculated DIFFERENTLY to a credit card interest rate?

For example, if I am R10,000-00 Overdraft and my interest is 15%, can I assume that the interest would be R1500?
Click to expand...

Both are calculated the same way. Credit Card rates are also quoted as annual rates. So if your annual rate is 15% that means that the interest will be 15%/12 = 1.25% per month.

Also both of those products are revolving so you only technically have to pay off the amount you have borrowed when you want to close the account, but you do have to pay the interest every month.

In your example: You use R10,000 of your overdraft, the minimum amount due at the end of the month will be just the interest R10,000 * 1.25% = R125. However, if you only pay R125 you will still owe the bank R10,000 and you will keep paying interest every month on whatever you owe the bank. A credit card will work in exactly the same way with the only difference possibly being the interest rate.
 
Thanks so much Guys. This is exactly the explanation I needed and standard bankncoulsnr explain it to me like this. Granted the consultant was struggling with English alone..
 
this makes soooo much sense, thanks guys :)
 
I have a question regarding interest on credit card.

Say I earn 5k per month and owe 10k on credit card. If i pay the full 5k on my credti card and then immediatly transfer it back in to my account, will I only be paying interest on the other 5k, as you get 60 interest free?
 
deni-do said:
I have a question regarding interest on credit card.

Say I earn 5k per month and owe 10k on credit card. If i pay the full 5k on my credti card and then immediatly transfer it back in to my account, will I only be paying interest on the other 5k, as you get 60 interest free?
Click to expand...

Nope, the 55 days interest free only applies to card swipes, transfers attract interest immediately.

In the more general case of transferring the money in and leaving it for a few days, they calculate the interest on a daily basis based on the outstanding amount at close of business that day. They then add all the daily interest amounts together to get the monthly interest.
 
Jehosefat said:
Nope, the 55 days interest free only applies to card swipes, transfers attract interest immediately.

In the more general case of transferring the money in and leaving it for a few days, they calculate the interest on a daily basis based on the outstanding amount at close of business that day. They then add all the daily interest amounts together to get the monthly interest.
Click to expand...

so how does the 60 day interest free period work? :confused:
 
deni-do said:
so how does the 60 day interest free period work? :confused:
Click to expand...

It works on billing cycles. 1 billing cycle is the period between statements being generated (e.g. 25th to 25th). When you make a purchase with your card, you are given the remainder of the current billing cycle and the whole of the next one (hence the "up to" 55 days interest free) to pay off that amount completely before you are charged interest on it. If you have not paid it off completely by that time, you are charged interest from the date of the purchase based on the outstanding amount per day. This is to encourage people to actually use their credit cards to make purchases which the bank/card agency gets a fee for.

Transfers out of the account or cash withdrawals are not counted as purchases and attract interest immediately.
 
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