Credit card application requirements are not as stringent as they used to be, which has led to the emergence of one card per person. Many people only use their credit cards, but they don’t know how to calculate the interest on their credit cards.
Every credit card has a billing date and a payment date. The billing date is the Statement Date and the payment date is the Payment Due Date, which varies for each person and each credit card.
Usually, there are about 20 days between the statement date and the payment date. If you pay off your outstanding debt within these 20 days, you will not have to pay any interest. This is the most cost-effective situation because you only need to pay the bank back the full amount you have spent and you will not have to pay any interest.
On the other hand, if you only pay the monthly minimum payment, which is 5%, then you will have to pay interest. If you pay only part of the amount owed, you will lose your interest-free period, even if the amount owed is a mere 40 sen, and you will have to pay interest. This interest will be reflected in the next month’s bill.
Example:
Mr. Cheung’s bill date is the 29th of each month and the due date is the 17th of each month.
A credit card statement that comes out on July 29th will show all of Mr. Chang’s transactions between June 29th and July 28th. Mr. Teo has made only one purchase of RM1,000 in this month, Mr. Teo’s credit card statement will show an outstanding balance of RM1,000 with a minimum payment of RM50.
Billing date: 29th of every month
Payment Date: 17th of every month
Amount Spent: RM 1000
Bank interest rate: 18%
Minimum Monthly Amortization: 5%
Different repayment scenarios, Mr. Cheung will face the results:
(1) If Mr. Teo repays the full amount of RM 1000 by 17th August, then he will not have to pay any interest. This is the most cost-effective scenario because he only needs to pay back to the bank the full amount he spent without paying any interest.
(2) If Mr. Teo only pays the minimum payment of RM 50 by 17 August, the bill issued on 29 August will show the amount of interest to be paid.
