3 Steps to Understanding Your Credit Card Interest Rates
Have you ever tried to fall asleep in a room with a lone mosquito trying to have its way with you? There you are, the epitome of evolution, unable to sleep due to a single petty insect. That’s sort of like how your credit card interest rates work.
They might seem small and insignificant – come on, what’s 8%, 10%, even 15% interest, right? – but in reality, their impact is huge. This contradiction is what causes confusion among credit cardholders. Luckily, it’s relatively easy to understand your pesky interest rates:
First: Figure Out How Much Interest You Get
Credit card interest rates in Malaysia range from 8% to 15%, depending on two main factors:
- The bank or provider
- Your credit score
The card provider will of course have the final say on your interest rates, but they will base it on your credit score. The higher your credit score, the better your interest rates will be. Keep in mind that each bank or provider might interpret your credit score differently, so, again, different providers might offer different rates, though they’re all referencing the same credit score. Yours.
So before you go and apply for a credit card, make sure to explore all options and find the best deal for your situation. One of the most highly recommended credit cards in Malaysia is the Maybankard 2 Cards Platinum American Express, which can be paired with a Visa and MasterCard. There are no annual fees for life on this credit card, and it offers excellent cashbacks, at no conditions. You can use the card on any shoes, fashion, and IT outlets that accept American Express cards.
Second: Understand (and Avoid) the Interest Domino Effect
The first part isn’t so bad; you just need to compare credit cards and see which provider likes your credit score the most and go with them. When you finally have your credit card, however, things get a bit more complicated.
Two major aspects lead to credit card overspending:
- The ease and convenience of having a piece of plastic to swipe and voila! Bills paid!
- The fact that you don’t see the money changing hands.
This means that not only do you have easy access to funds, but you also never physically see those funds and it would be harder to keep track of your spending. Then, there’s the interest.
Your interest may seem forgivably small, but it can easily snowball into a nightmare of debt and constant repayment. Take a look at this vicious cycle:
You pay for say, a new Apple gadget you’re charged interest you pay for part of your bill the debt left is carried over and MORE INTEREST is piled on top of it rinse and repeat.
See what’s happening here? Since you overspend, you can’t pay your entire bill. Since you can’t pay your entire bill, you get more interest to pay off the next time you pay part of your bill. In the end, you did not just pay for the total amount of the Apple gadget plus the 8% to 15% interest, you pay the 8% to 15% interest multiple times on different amounts.
You may not know it but most banks in Malaysia usually require only a minimum monthly payment of 5%. If you do however, pay only the minimum amount, you incur interest known as financial charges based on an interest rate structure that may look like this:
Tier 1 – 13.5% per year
If you pay credit cards on time for 12 consecutive months
Tier 2 – 16% per year
If you pay credit card bills on time for at least 10 out of 12 months
Tier 3 – 17.5% per yer
If you pay credit card bills on time for at least 9 out of 12 months
The above figures are as recommended by Bank Negara Malaysia and tiered interest rates could vary with every bank. In essence though, every time you fail to pay the full monthly amount due you incur higher credit card debt at the end of the year!
Third: Keep Abreast of Special Cases Concerning Credit Interest Rate
Much like spending time in jail where you can be released early if you behave well, your credit card provider in Malaysia may also consider your credit card use history and lower you interest rate after a specified and agreed upon period of time. The key is to know the specifics. Also, you might want to check out promotions where providers don’t charge interest for a period of time after a purchase as well as similar agreements.
A sound piece of advice: don’t ignore that mosquito. Compare credit cards in Malaysia, understand the facets of your interest rates, and most of all: spend wisely.
Credit Card Malaysia – Written by CompareHero (http://www.comparehero.my), one of the leading financial comparison portal in Malaysia. We aim to guide people on their financial matters, and help them to save money and time. Please do check our website to learn more.