Credit Card Spenders, It Pays To Pay Up!

Effective 1 June 2008, the Central Bank of Malaysia (Bank Negara Malaysia) will introduce a new Tiered Interest Rate Structure on retail purchases using credit card. This structure has been introduced to inculcate prudent financial management among credit card users. Card users who demonstrate good track record in settling at least their minimum payment promptly will enjoy reduced finance charges.

Currently, all outstanding payment after due date will be charged a standard 18% interests per annum calculated on a daily basis. The banks are therefore often labeled as the "legal loan shark" as a result of charging such an exorbitant high rates! Anyhow, the intention was to deter credit card defaults or using credit card as a debt instrument. However, the results often showed an increasing trend of debts and/or bad debts, which is not the intention!

As for late payment, the current policy is to charge 1% on the minimum payment amount.

On the other hand, interest free period is currently set to 20 days, for card holders to enjoy 20-day interest free period upon purchase.

With the tiered structure, different interest rates will be charged based on past payment track record:

Card users with prompt payments for 12 consecutive months - 15%

Card users with 10 or 11 times prompt payments in the last 12 months - 17%

Card users with 9 or less prompt payments in the last 12 months. - 18%

Sounds good for card holders with prompt payment track record? Read carefully! First of all, the interest-free period for card holders who do not pay in full will be effectively removed! That means, although one may pay the minimum payment promptly but without paying full settlement, all amount from new transactions posted will be charged interest on the day the purchase happens! Secondly, the late payment charge is now set at a minimum of RM10 or 1% on total outstanding balances!

The outcome of all these is that the card holder may end up paying much more interests than before if the person does not settle the outstanding card balance in full!

At a start, paying such an exorbitant amount of interest is not right, let alone paying more!

How is this differ from your country?