Refer to the annual interest charges for Maybank credit cards.



Assume you are one of those who constantly spend more than you earn and frequently misses your payment, putting yourself in Tier 3 bracket of 17.5%.


Say, you have outstanding balance of RM 10,000, so you'll think (I did previously) that, even if I don't pay a single cent for the next 12 months, by the 13-th month, I would need to pay 117.5% x 10,000 = RM 11,750. Or, you think, every month, I will be charged a monthly interest of 17.5% /12 = 1.4583%


Not quite that simple. Confused? Let's solidify the concept with an example below.

Remember, you get your credit card statement monthly - your outstanding balance plus interest incurred previously will be carried forward to the subsequent month. That means, the compounding period is monthly!


In other words, as you are well aware, for the first month, the outstanding balance plus interest incurred is RM 10,145.83. On the second month, the 1.4583% interest will be charged on RM 10,145.83 brought forward from the first month. See the impact of compounding over here?


Effectively, once you want to settle the balance outstanding after the 12th month, you will be paying MORE than the advertised interest rate of 17.5% due to compounding, because 17.5% is really the APR!


The actual interest rate you will be paying is the AER. For APR of 17.5%, the AER is 18.974%!! See APR to AER conversion here. Or in monetary amount, RM 11,897.40 instead of RM 11,750.00


Still don't believe me? Read this and compute FV in excel with the following inputs: nper = 12 months, 0.014583 for rate and PV = -10,000. Put zero for Pmt. The concept is similar.


So, why banks quoted you 17.5%?


Simple, because it is a lower number between the two. When you are the bank's debtor, bank need you give you the disguised impression that you need pay less than you are actually paying. This is marketing - they are not actually lying to you, just that it's not the whole truth. You have nothing to blame but your own ignorance. Different countries have different rules and regulations in place to combat some of the unscrupulous activity surrounding quoting rates that has arisen in the past; however, there is no better insulator against these ruses than proper financial knowledge. If you know of any bank which quote AER instead of APR for credit card interests, let me know - I am pretty sure their credit cards product would not be selling too well even though they are telling the truth to customers!

http://lieucf.blogspot.com/2011/08/lesson-...-card.html#more

Also submitted for Ezine article: Annual Percentage Rate Versus Annual Effective Rate - Can You Differentiate?" (6527052)

This post has been edited by Auron: Sep 2 2011, 11:08 PM

Thanks for sharing, learned something from ur thread

what about islamic cc, they claimed the interest on cc balance is not compounded like the conventional one

17.5% is based on per annum. For marketing purposes, the banks nowadays quote rates like 1% or 1,5% per month. But like you said, it is the debtor who failed to understand and actually most of them don't even bother to read the Terms & Conditions and or the example on interest calculation in their monthly statement.

Anyway, if you ask me, 13.5% - 17.5% is still freaking high even if it is not compounded.

Also, it is the same for personal loan where the effective interest rate is higher than that quoted in the bank brochures.

To all credit card holders, always settle in full every month.

And just to add, if you fail to make payment, you be slapped with late penalty charges which will also be imposed interest charges the following month and interest charges begins on the the day you made the transaction.

well, technically they are right in away, they don't call it compound but Profit Charges But you still be charged the same monthly rate as non islamic cards.

To All:
I have done a sample calculation on interest charges imposed onto outstanding balances. Click here to read my article Credit Cards Are Cash Cow For Banks. Are You Working For the Banks.

Gen-X, very nice article you got there in your blog. This is really, the level of details everyone needs!

8.88% from Maybank2Cards ain't that bad right?

Well, good is you need to use the credit facility but bad since you'll be imposed interest on your new transactions too.

@ Auron, good explanation - refreshing my memory after reading it

anyway, banks are here for business + profits for shareholders - if you are wise in your spending and carefully use the facility, i think you won't get caught with the cost of using credit cards

thanks.

Now, do you realize that if you are the lender to the bank, example, FD, bank will do exactly the reverse - they quote you AER instead of APR because AER is always higher than APR, everything else being equal. Smart marketing ploy huh? Coz they know as a customer, you are always looking for highest possible rate of return.


Everyone can try this. Say, 1 month FD rate is 3% per annum. So you would have thought, if i put 1 month FD of RM 10,000, I get, (3/12)% x RM 10,000 = RM 25. But NOoooo, the interest earned would be definitely less than that after 1 month.

8.88% will never be APPLICABLE if you have a Valid BT in mbb cc...

mine is written 16% after BT is approved... and got "Charged" a little on around rm15++ for interest missed payments.. +_+"

This post has been edited by boonykun: Aug 20 2011, 08:26 AM

what's BT? sorry not really familiar with the acronyms

Balance Transfer:)

Those of you who are looking for credit card interest calculator and duration to settle outstanding balance, click here to me article where I gave examples of different credit card interest calculators.

That is so not true. I have two ongoing BT in my MBB2 VISA now and my retail interest is still 8.88%. I never missed a payment since i received the card in January this year though.

can share BT and installment like tis is for your own business financial purpose?