The issue of charging interest on a credit card is simple and complex at the same time. Today, such products are widespread, but often their owners do not fully understand the conditions of their use. The article will examine in detail how interest is accrued on a credit card.
Credit Card Interest Calculation Mechanism
To begin with, the interest calculated in the loan agreement is calculated. They are considered based on the amount of the debt, and not on the credit limit provided.
Events can develop in two ways:
- A man pays for purchases with a credit card. In this situation, interest will begin to accrue only after the grace period ends. Currently, they are provided by almost all banking organizations issuing credit plastic.
- A person cashed cash or made other expenditure transactions through a credit card account. In this case, the amount of debt the next day will be increased by the amount of interest. Only in rare cases, banks leave customers the opportunity to use an interest-free period after cash withdrawals.
Much remains incomprehensible
Often, after issuing credit cards, unpleasant situations arise. A person seems to understand the percentage, but where the amount of debt comes from is not clear. A recount of payments shows that the overpayment is more than the originally declared amount. How are credit card interest calculated in this case? It is important to remember about insurance, which as a mandatory element is attributed almost by default to all banking products involving a cash loan.
Before receiving a credit card, you must carefully read all the points reflected in the contract so that no such surprises arise. The client always has the right to refuse insurance if the proposed conditions are not suitable for him. If the banking organization is not ready for such concessions, then you can choose another insurer, the conditions of which will be more acceptable.
How are credit card interest calculated?
First, you should highlight such a thing as a reporting date. It is individual for all clients, the reporting period begins with it. It is determined in three ways:
- The first withdrawal of money from a credit card.
- Card activation by customer.
- The date the credit card was issued (as a rule, it is indicated on the envelope in which the PIN code is issued).
The bank independently chooses which approach to use. In some cases, the grace period is not provided, or it has already ended. In this case, in addition to the money used, the client will need to pay the interest stipulated by the contract.
Be that as it may, banks set a minimum monthly payment amount. As a rule, it is 5% and higher of the existing debt. Even if the cardholder used a very small amount, he will have to pay the stipulated minimum.
Now we will analyze the algorithm in detail. The interest rate is multiplied by the amount of debt available at the reporting date. The result that is obtained is divided by the number of days in a year, and then multiplied by the number of days of the loan.
Example: if you spend 30 thousand rubles with a credit card at which the interest rate is set at 25%. Then: (30 thousand rubles * 25%) / 365 * 30 days = 616, 44 rubles. That is how much you will have to pay for the use of 30 thousand rubles for one month.
How interest is accrued on credit cards using examples shown below.
The procedure for calculating effective interest rates (EPS) on credit cards
First of all, you should understand the concept of effective interest rate. In simple terms, this concept designates the percentage of overpayment for the use of credit funds. In accordance with the new banking legislation, the concept of EPS was replaced by CPM (the full cost of the loan). This amendment is regulated by article 6 of Article 353-FZ related to consumer lending.
The value is considered not only the percentage announced by the bank. Associated payments that are known to the client at the time of the conclusion of the loan agreement are also taken into account:
- The cost of servicing a credit card.
- Card issue cost.
- Payment of operations of deposit and withdrawal of funds.
- Other payments stipulated by the contract.
How much the cardholder uses, and also during what period he will pay the debt, is not known in advance. This is enshrined in the regulations of the Central Bank.
The calculation of the effective interest rate will be correct if we assume that the borrower used the entire credit limit immediately. In this case, the payment schedule will consist of the same monthly amounts.
This approach is undoubtedly controversial, and few people use a credit card in that way. As a rule, the bank's client launches it if it becomes necessary to use additional money. Moreover, arising debts will be canceled soon. This approach is most relevant on the part of the card holder if the bank has provided a grace period for its product.
There is one thing to agree on - the effective interest rate calculated in this way will not be less than the real one. That is, it is better to voice the worst-case scenario immediately; using a loan will not cost more.
Taking into account the grace period
Closer to the truth will be the calculation of accrued interest on a credit card, taking into account the use of the grace period. If we consider the example of a card with a credit limit of 30 thousand rubles, the issue of which cost 650 rubles, it turns out that the EPS will be only 3.2%. This is provided that if there is no insurance, the client did not withdraw money in cash, the services of a mobile bank are provided free of charge, and all debt is canceled within an interest-free period.
Quite recently, all banks were entrusted with the obligation to inform the client about the size of the expected overpayments for a credit or loan. Financial institutions should indicate this information on the sheets together with the debt repayment schedule.
Calculation of interest on cash withdrawals from credit cards
It is important to find out in advance how interest is accrued on a credit card if you withdraw cash from an ATM. As a rule, banks charge 5% of the withdrawn amount, but sometimes the percentage may be higher. One of the main pitfalls lies in the fact that cash withdrawals also have to pay a commission of about 200 rubles (sometimes more). At first glance, such an amount seems insignificant to customers, but if you think about it, the additional cost when withdrawing 1,000 rubles will be 20%. Undoubtedly, if you withdraw large amounts from a credit card, then this value will not be very noticeable.
Often, financial institutions do not provide grace periods for debt repayment if a client withdrew money from a credit card or made transfers. If, nevertheless, the need for such operations arose, then you should not use the first ATMs that were found for conducting them. It is recommended to look for self-service devices of the bank that issued the card, or of the financial institution that is its partner.
Only one thing is clear - cashing out money from credit cards is unprofitable for customers. Such operations should be avoided.
Overview of interest rates on credit cards of various banks
Among credit cards, there are offers that allow you to receive bonuses for use, certain sets of discounts in different stores, an extended interest-free period. To better assess what interest is accrued on different cards, and to understand such a variety, you should consider the products offered by various financial organizations.
Interest on Alfa Bank credit cards is calculated as follows:
- The bank charges a rather large commission for cashing out funds - at least such an operation will cost 500 rubles, if you remove large amounts, you will have to pay from 6.9%.
- The Bank accrues on average 23.99–38.99% per annum on its loans.
- It is favorably distinguished by the possibility of using the longest (in comparison with other banks) grace period, which is 100 days. That is, in the first three months the bank will not charge interest on the use of credit funds. This bank also offers other plastic loan products, the grace period for which is 60 days, which is also longer than in other cases.
Many are interested in the question of how interest is charged on a Tinkoff Bank credit card:
- Interest on the card of this bank depends on how the client uses it - withdraws cash or pays for purchases. This indicator fluctuates in the limit of 24.9–45.9% per year.
- For servicing a year, a credit institution charges 590 rubles.
- Cashing out funds will cost 290 rubles, plus 2.9% of the withdrawn amount.
- The grace period for the products of this banking institution is 55 days and no more.
These credit cards are popular and widespread, despite the fact that the bank does not have offices, and customer service is carried out remotely via the Internet.
Despite the fact that interest on a Tinkoff credit card is usually higher than that of competitors, customers get several advantages:
- Home card delivery.
- Simplicity of design.
- Cheap credit card service.
- A wide network of partner banks.
Accrual at Sberbank
Now we will consider how interest is accrued on the credit card of Sberbank:
- The average interest rate on Sberbank credit cards is 25.9 = 33.9%.
- Cash withdrawal will cost at least 390 rubles or 3%.
It should be noted that the offers for calculating interest on Sberbank credit cards for regular and privileged customers do not differ. There are Momentum credit cards, which are distinguished by their quick registration and issuance. But only bank customers can receive them and only by special offer. Cashing out funds for such a product is cheaper - at least 199 rubles for each operation.
How are interest charged on a VTB 24 credit card?
- Interest rates on credit cards of this bank can be different - 22, 26, 28%. The percentage of the classic product that this bank offers is 33%.
- Grace period - 50 days.
- Cashing out funds will cost at least 300 rubles or 5.5%.
"Bank of Moscow"
This bank does not have many offers for credit cards, but for each of the available products an interest-free period of 50 days is set. The percentage on cards is 29.9–36.9%. VIP customers on a special offer from the bank can receive a card with a rate of 16%. For cash withdrawals, you will need to pay a minimum of 500 rubles or 6.9% of the cash amount.