Wednesday, January 13, 2010

Credit Card forward calculate interest

If you have a remaining unpaid balance of $0.01 in your credit card from last month,
and then you use $1,000 this month ...

You may think the interest 18% should be imposed to your 1 cent balance which is ignorable but in actual fact, the interest is calculated based on your future expense as well. So ...

$1,000.01 x 18% -> pro rate to 1 month => $15

See the magic of finance ? You could get charged $15 from your $0.01 remaining balance. Despite your $1,000 usage is not even due yet !

A handful of local banks are already exercising this interest forward calculation method. Most of the international banks on the other hand agree this is ridiculous and didn't enforce this calculation on small remaining amount.

But recently banks lose many credit card accounts so they are quietly imposing this again to upbeat some profits.

Many good card users are caught only after some time because they just couldn't believe such a ridiculous abusing technique can exist around us for more than 2 years already.

When inquired if banks have approval from Bank Negara to do this, a very ambiguous respond is given. Apparently when banks were gaining approval for "multi tier interest", this forward calculation method is part of the small clauses. It is unknown if BNM was just being sloppy or they just quietly pass it through.

Either way, you should have another proof that the big guys will NEVER take care of your personal finance.