One of the main advantages of a credit card is that you can spend first and pay later, enjoy an interest-free period on purchases and transactions. Understanding the features of the interest-free card mechanism will help you make the most of the interest-free term and get the maximum benefit.
Benefits of a credit card with an interest-free period
The main advantage of credit cards of this category is the ability to use the borrowed funds of the bank for free for a certain period of time. The main thing for this is to make current mandatory card payments in a timely manner.
When choosing a credit card with an interest-free period, pay attention to the cost and terms of its service https://vaytienmat24.com/bankcard/creditcard/. In some cases, you can use the card for free for 1-2 months, then, in order not to pay, the client will have to fulfill the requirements for account turnover. For example, free service is possible if the amount of purchases on the card is not less than 15 thousand rubles. per month. It is purchases that are taken into account, this does not include cash withdrawals, transfers.
The longer the grace period, the more expensive the card maintenance will be, the higher the interest rate after it. Not all credit cards with a grace period allow you to withdraw cash without interest, the rate for receiving cash can reach up to 50% per annum.
How does the grace period work?
The high level of competition forces banks to offer potential customers ever more favorable terms of service. One of the bonuses offered by most financial institutions today is interest-free credit cards.
The grace period is the time during which you need to return the money borrowed from the bank so as not to pay interest on them. Banks have different approaches to organizing a grace period, but the most common is the following: the borrower has a reporting period date on which all loans (purchases) for this period (month) are calculated. Starting from the date of the reporting period, the client has a certain number of days (the same grace period) in which the money must be returned. Returned – do not pay interest, did not return – interest is charged on the debt.
When choosing a suitable offer to issue a credit card without interest, several parameters must be taken into account:
- duration of the grace period;
- the base interest rate for using the funds of a banking institution outside the grace period;
- service cost (some banks “hide” interest payments in regular bank card payments);
- the level of penalties provided for non-compliance with the conditions for using an interest-free loan.
How to get a credit card with a grace period?
The key parameter of choice is the length of the grace period. It varies over a very wide range, starting from the standard 45-55 days and ending with 100 days.
The basic requirements for issuing a bank card with a grace period do not differ from a standard credit card. The client needs to provide personal data, as well as confirm the level and stability of income. The easiest way is to issue plastic in the bank whose products the client already uses.
Misconceptions about the interest-free period
Misconception 1: Any transaction is interest-free during the grace period
In fact, only transactions made in the first days of the new billing cycle will benefit from the interest-free period. Transactions towards the end of the billing period will have a shorter interest-free period.
Example: You have a credit card with an interest free period of 45 days. The billing cycle is from April 1st to April 30th, and the last payment date is May 15th. Operations arising with a credit card, respectively:
- April 1 payment in the restaurant: VND 2,000,000.
- April 10 payment of the electricity bill: VND 1,000,000.
- On April 30, buy air tickets online for VND 5,000,000
- Currently, the interest-free period for transactions is calculated as follows:
- Payment transactions in restaurants (April 1): Interest-free period of 45 days.
- Electricity payment transaction (April 10): Interest-free period 35 days
- Payment transaction when buying tickets online (April 30): Interest-free period of 15 days.
Misconception 2: Any credit card is interest-free for a certain period
In fact, the interest-free period of a credit card will depend on the card product and the issuing bank. Some banks now offer credit card interest-free periods of up to 55 days or more. However, 45-day interest-free credit cards are the most popular.
Misconception 3: Withdrawing money from ATMs is also interest-free during the grace period
In fact, if you use your credit card to pay for your expenses, you will be interest-free for the number of days specified in the contract. However, the interest-free period does not apply to cash withdrawals. If you use a credit card to withdraw cash, you will continue to accrue interest at the time of withdrawal until you have fully repaid the original amount. This is why you should only withdraw cash when absolutely necessary and try to pay it off as soon as possible.
Example of a credit card with a 45-day interest-free period
You are using a credit card with an interest free period of 45 days. The payment cycle is from April 30 to May 30, the payment term is June 15, and the applicable interest rate is 32% per annum. During April, you used your credit card to pay for the following items:
- On May 10, payment for Big C purchases is VND 4,000,000. Debit balance 1 will be VND 4,000,000.
- On May 15, pay the bill for 1,000,000 VND. Debit balance 2 will be VND 4,000,000 + VND 1,000,000 = VND 5,000,000.
- On May 30, you pay the bank 5,000,000 VND. The remaining 3 debit balances are 0.
Thus, you have fulfilled your obligation to pay the entire outstanding balance within an interest-free period of 45 days. Thus, you will not have to pay interest on 2 spending on May 10 and 15.