Bank Transfer? are you referring to a loan?

If loan 5% per annum,interest calculate daily/monthly or straight line basis?

I have yet to do any credit card transfer or taken any personal loans, so the following is not from hands-on experience but from common sense assumptions.

An interest free or 0% credit card transfer should be same as buying things in an instalment plan that is interest free or 0%.
For example, if buying a TV that cost RM2,400 under 0% interest, and 24 month instalment plan, the monthly instalment is RM100. RM100 will be charged into your credit card every month for 24 months.

Similarly, the transfer from one card to another card, the monthly amount will be charged to your 2nd card every month for the agreed period to pay back.

In personal loans, the interest calculation and instalment amount should be same as in a car loan – that is a flat rate interest calculation.

For example, if the loan amount is RM10,000, interest is 5% and loan period is 2 years, the monthly amount to pay is:
10,000 x 5% x 2 = 1,000
(RM10,000 + RM1,000) / 24 months = RM458.33 monthly instalment.

In several previous posts, the difference between a flat rate loan (as in a car loan) and balance interest rate loan (as in a housing loan) was explained.

Also explained was the lump sum to pay if we want to terminate the loan with a lump sum settlement. In a flat rate loan, the lump sum to pay will follow the “rule of 78” calculation.

There were people who don’t understand the “rule of 78” and yet tried to outsmart the banks by “cleverly” taking a bigger loan than necessary and taking a longer repayment period than necessary, and thinking that they can save some interest cost by doing a lump sum settlement as early as possible. Say taking a 7-year car loan, and then want to do a lump sum settlement the next year.

No, don’t try to outsmart the banks which are run by financial professionals.

Whether or not there were any upfront handling or administrative fees, the operational costs are usually included in the interest rate. For example, the interest rate for an 18 months car loan will be slightly higher than the interest rate for a 7 years car loan.

I am afraid I have some doubts whether to answer your questions in a straightforward manner without cautioning you on what you are about to do. It seems to me, you are in a bit of financial trouble and maybe heading deeper into more troubles.

Credit Limits...

Why are you concern of credit limits? If you are touching the credit limit which is the max amount you can have on credit, this is a red flag and a warning sign that you are spending beyond your means/financial ability/salary.

Maybe you are looking at credit cards as having a Personal Lender on standby. But I view credit cards as a mode of cashless payment and always pay the monthly statement in FULL.

I have been using credit cards for years, and I have never ever paid any interest charges since I paid in full on due date.

Balance Transfer...
When you do a balance transfer from one card to another, you are clearing the first card. In other words, you will have back the max credit limit in this card. See… I think I can see light bulbs flashing around you… you will then have a clean card with the max credit limit at your disposal.

If you balance transfer from 3 cards, you will have 3 clean cards. 

In the card you balance transfer into, the monthly statement will not show the whole transferred amount. The instalment amount will be billed monthly. So, depending on what plan you selected and how many months to pay back, the monthly instalment amount will not affect or touch your max credit limit in this card.

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To answer this query on credit card transfer, I have looked into Maybank webpage on Balance Transfer. To know the full details, looked into the Terms and Conditions pdf and the Product Disclosure Sheet.

There are several “plans” available and each with different repayment period from 6 months to 36 months. Each of them with slightly different terms and conditions. Some with reducing balance interest, and some with flat rate or straightline interest method. And there are various upfront charges and fees in each plan.

So, how to choose which plan to take? Which has the best and lowest interest and fees?

No, you should keep it simple and simple reasoning.

Forget about lowest interest option… since you are already incurring cost of interest in whatever plan you choose to have. Think of this cost of interest as necessary expenses and don’t over think on saving costs.

The best plan is the one with the instalment amount that you can pay WITHOUT FAIL every month. So, you need to think carefully how much you want to pay every month and how much you can pay.

You can use online calculators to estimate the instalment amount.

Though this instalment amount is billed into the monthly credit card statement, it MUST be paid in full. If it is not paid in full, its remaining balance will incurred the highest credit card interest at 18% p.a. untill it is paid in full.

So, not only the one-time upfront fee and charges were paid, another cost is added onto the late payment.

(Note: in certain plans with shorter payment period, instead billing into the credit card statement, a separate account will be opened for payment purposes.)

Happy New Year and Gong Xi Fa Cai.

Continuing from previous post… some may wonder why I don’t suggest a lump sum settlement on a personal loan or a credit card balance transfer when there is extra money to do so but carry on paying the monthly instalment till completion.

There are 2 reasons.

The first reason is due to the rule of 78 in calculating the outstanding balance. Though there would be some cost savings, the savings is not that significant because the cost of interest is already built into the loan when using rule of 78.

The other reason is that it would be better to hold onto the money and increase the amount of cash we have in hand as an emergency fund.

The need to have a personal loan or outstanding balance on a credit card is due to insufficient emergency fund to meet unexpected expenditures.

If the money is used to do a lump sum settlement on a personal loan or credit card transfer, and if there is inadequate savings, then we would need to resort back to taking another personal loan or using a credit card to meet any unexpected expenditure.

This could lead to an endless cycle of being in debt of a personal loan or credit card debt.

As in the above scenario of doing a credit card transfer from 1 or 2 cards, it would be better to carry on with the instalment plan, whether it is 24 or 36 months till completion. Whatever extra money there is, it should be used to pay the credit card(s) outstanding balance.

1) Do not just pay the minimal amount but try to pay as much as possible to reduce the cost of credit card interest.
2) Reduce transactions on the card and keep a tight budget on the monthly amount to charge on the card.
3) Continue (1) and (2) till the outstanding balance can be paid in full every month.
4) Slowly built up savings and emergency fund after achieving (3).

Hopefully, with adequate savings, there will be no more need to have a personal loan or be in credit card debt to meet any unfortunate and unexpected expenditure.

Hopefully, in the New Year, there are only good fortunes and no unwanted events, and our wallets grow fatter, not thinner!

Gong Xi Fa Xai.