{"id":1123,"date":"2024-09-02T17:22:37","date_gmt":"2024-09-02T09:22:37","guid":{"rendered":"http:\/\/blog.imoney.my\/?p=1123"},"modified":"2024-09-13T17:31:05","modified_gmt":"2024-09-13T09:31:05","slug":"credit-card-tiered-interest-rates-guide","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/credit-card-tiered-interest-rates-guide","title":{"rendered":"How Is Interest Charged On My Credit Card?"},"content":{"rendered":"

You\u2019ve just received your credit card statement and you’re shocked to see that along with your spending transactions, you’ve been penalised with finance charges and late payment charges that total up to a rather indecent amount.<\/p>\n

What happened?<\/p>\n

You were only<\/em> a couple of days late in your payment last month.<\/p>\n

Don’t fret. Read on for the scoop on the interest rates for your beloved plastic so you’re never caught by surprise again when you receive your next statement.<\/p>\n

<\/span>1. Compounding interest rates<\/strong><\/span><\/h2>\n

Interest is essentially ‘rent’ on money. When you use your card, you’re borrowing the bank’s money to spend, and in return, the bank charges you a \u201crent\u201d on that money if you don\u2019t pay them back within a certain period.<\/p>\n

Bringing that to another level, compounding interest is, in simple terms, interest charged on interest. For each day you owe the bank money on your credit card, the bank charges you interest on that amount. The following day, you will be charged interest on your total outstanding balance, which would be the amount the bank has lent you, plus \u201cyesterday\u2019s rent\u201d. The day after, you will be charged interest on your new outstanding balance, i.e. amount you borrowed plus two days of \u201crent\u201d. The same thing happens the day after and continues perpetually until you pay off all your debt.<\/p>\n

<\/span>2. Interest is compounded on a daily basis<\/strong><\/span><\/h2>\n

In the example above, the interest was compounded daily.<\/p>\n

That\u2019s because it\u2019s exactly how banks are calculating your interest charges – on a daily basis. What this means is that the interest rate per year given to you by the bank is divided by 365 days (e.g. 15% divided by 365), and that rate (0.041% in our example) is multiplied to your outstanding balance every day until all your debt is cleared.<\/p>\n

Note:<\/strong> Daily compounding interest can make a difference in the long run. In the case of the 15% rate, compounding that daily would effectively make it 16.18% a year – that\u2019s RM161.80 on a RM1,000 debt (not RM150). So, if you have the financial capacity, never pay tomorrow what you can pay today!<\/p>\n

<\/span>3. Credit card tiered interest rates<\/strong><\/span><\/h2>\n

If you\u2019ve read the fine print on our credit card comparison table<\/a>, you\u2019ll notice that the interest charges differ depending on your payment behaviour. This is because Bank Negara Malaysia has introduced a tiered structure to promote good financial discipline.<\/p>\n