{"id":39727,"date":"2019-09-17T17:42:14","date_gmt":"2019-09-17T09:42:14","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=39727"},"modified":"2019-09-17T17:45:09","modified_gmt":"2019-09-17T09:45:09","slug":"financial-jargon-buster-credit-cards","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/financial-jargon-buster-credit-cards","title":{"rendered":"Financial Jargon Buster: Credit Cards Interest Rates"},"content":{"rendered":"

In partnership with\u00a0\"\"<\/p>\n

Own a credit card? Then you need to know how credit card interest works.<\/p>\n

When you make a purchase and don\u2019t repay in full within a certain period (usually 20 days), your bank will charge you interest.<\/p>\n

But here\u2019s the tricky bit \u2013 there are several types of interest rates. Curious about how they affect you? Read on to find out.<\/p>\n

\"\"<\/h2>\n

The interest rate on your credit card (e.g. 15% p.a.) is the interest rate you have to pay when you carry over any balance on your credit card over the period of 1 year. This is the number that\u2019s shown on your credit card agreement, or on a credit card comparison page<\/a>.<\/p>\n

\"\"<\/h2>\n

Some credit card issuers calculate your interest charges on a daily basis. This is calculated by taking your credit card\u2019s annual interest rate divided by the number of days in a year (365), and applying that to your credit card balance.<\/p>\n

\"\"<\/h2>\n

Okay, so you know that the advertised interest rate shows how much interest you will be charged if you carry over a balance on your credit card. However, you could end up paying more interest than that.<\/p>\n

Effective 6th<\/sup>\u00a0August 2019, any unpaid balances in your credit card account (including prior interest charges) will incur interest as well. Therefore, a more accurate way to calculate your actual interest\/finance charge is through the effective interest rate (EIR). Here\u2019s an example of EIR calculation:<\/p>\n\n\n\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t
Month 1<\/td>\n<\/tr>\n
A<\/td>Spend<\/td>RM1,000<\/td>\n<\/tr>\n
B<\/td>Interest (1.25% a month)<\/td>RM12.50<\/td>\n<\/tr>\n
\u00a0<\/td>Total<\/strong><\/td>RM1012.50<\/strong><\/td>\n<\/tr>\n
Month 2<\/td>\n<\/tr>\n
\u00a0<\/td>Balance carried over<\/td>RM1012.50<\/td>\n<\/tr>\n
C<\/td>Spend<\/td>RM500<\/td>\n<\/tr>\n
D<\/td>Interest (1.25% a month)<\/td>RM18.91<\/td>\n<\/tr>\n
\u00a0<\/td>Total<\/strong><\/td>RM1,531.41<\/strong><\/td>\n<\/tr>\n
E<\/td>Total spend (A + C)<\/td>RM1,500<\/td>\n<\/tr>\n
F<\/td>Total interest owed (B + D)<\/td>RM31.41<\/td>\n<\/tr>\n
\u00a0<\/td>Effective interest rate (F \/ E)<\/strong><\/td>2.09%<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

The example above shows that despite having an monthly interest of 1.25%, the EIR is actually 2.09% in the 2nd<\/sup> month because of unpaid balances from the previous month. This is why it\u2019s important to pay your credit card bills in full and on time.<\/p>\n

What other financial terms do you find baffling?<\/strong><\/h2>\n

There are many confusing financial terms out there, and credit card interest rates barely scratch the surface.<\/p>\n

But don\u2019t worry, we\u2019ve explained more common financial jargon in easy-to-read language for you. Click here<\/a> for general financial terms, or click here<\/a> for terms you\u2019ll see when applying for a home loan.<\/p>\n

Find out where you stand financially! Get your credit score report<\/a> and tips on how to improve your financial health from Hong Leong Bank and iMoney today.<\/strong><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

Annual interest rates, daily interest, effective interest rates\u2026what do these terms mean, and how do they affect you?<\/p>\n","protected":false},"author":1,"featured_media":39730,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[227,229,236],"tags":[],"class_list":["post-39727","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-credit-card","category-interest-rate","category-sponsored"],"acf":[],"yoast_head":"\nCredit Card Jargon In Malaysia You Need To Know<\/title>\n<meta name=\"description\" content=\"Confused by what annual interest rates, daily interest and effective interest rates refer to? 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