The number of banks is growing day by day and they are all fighting for customers. Credit cards are a very practical banking product that bankers use various advertising and marketing mechanisms to promote. As a rule, lenders try to extend the deadline for the free use of funds, the so-called grace period.
Apparently there is no interest in the use of external funds during this time, but is it really so? After all, the offers are very attractive, and in some cases, the interest-free loan term can reach 200 days. What’s the catch, and is it really profitable for the average person?
How is the grace period calculated?
The mechanism of interest-free or franchised lending has been used for a long time and works as follows:
- An interest-free credit card is opened at the selected bank or sent by post.
- The billing period begins – the time for which you buy by card; The bank, in turn, controls the amount of the costs and generally provides 30 days for this. Often the beginning of this period is considered the moment of card activation (sometimes the starting point is the first operation where the card is used).
- The credit card grace period also begins; During this time, the debtor is obliged to return all funds made available to his creditor. To avoid paying interest on a loan, all you have to do is return the entire amount borrowed on time.
The period of interest-free use of bank financing is summed up from the grace period and settlement periods so that the amount is at least 50 days.
When you have to pay interest
In cases where borrowed funds are not available, If full compensation is possible, the bank begins to calculate interest on the money spent during the settlement period. The end of the grace period is the day on which the minimum payment is made, which is 5 to 10 percent of the total amount of the claim plus interest for the use of the loan.
At the end of the first billing period (30 days), the second and following begin. It will act simultaneously with the payment period. This means that it is entirely possible to make new purchases with the card by paying off the debts on previous purchases in good time.
The specificity of the calculations
The determination of the amount of the accrued interest depends on the duration of two periods: the payment and the settlement. For easier explanation and understanding, it is better to use a specific example.
The point in time at the beginning of the billing period is when a credit card is received by the bank with an interest-free period or is activated in some cases. If we assume that the card’s activation date was March 1 and the card spent 30,000 dollars in a month, April 1, after 30 days, is the end of the first billing period. The bank will summarize and find out how much money has been spent in the past month and provide the customer with a notification of the amount of the debt. In this case, it will be 30,000 dollars. Information can be provided in several ways:
- SMS notification;
- Internet banking;
- Call the bank’s call center.
Then the payment deadline follows. Assume there are 20 calendar days. So it turns out that it will end on April 21st. If we combine the two periods, we get 51 days that bankers present as a grace period for a credit card or without interest.
It turns out that the client is turned off. If you want to pay interest on the use of bank money, you must reimburse all costs by April 21. This does not mean that the entire amount has to be returned at once, it can be split into several payments. The main thing is that by April 21, the entire amount would appear on the card (in this example – 30,000 dollars).
If you need more money
It is important to note that a credit card with the interest-free period does not prohibit the continued use of credit in the grace period. You can still shop with a credit card if the credit limit allows it. If, in addition to the funds already borrowed, a further 5,000 dollars were needed and these are on the card, the customer has every right to use them. However, in order not to pay loan interest, not 30,000 dollars have to be returned, but April all borrowed 35,000 dollars.
If you don’t pay off the debt in full, it seems possible it doesn’t matter. The customer must make at least the minimum payment amount by April 21. In some cases it varies between 5% and 10%.
For this example, let’s assume that the minimum payment should be 10% of the amount owed. So at the end of the grace period, at least 3,000 dollars must be credited to the credit account. All information is usually contained in statements that banks try to communicate to their customers in writing. They take into account transactions for the accounting period, that is, until April 1.
The following calculation deserves special attention, the period that will last from April 1 to May 1. The two periods intersect and overlap until April 21. This means that if the debt is not fully paid by April 21, the minimum amount will be calculated taking into account the total debt from May 1.
In the considered option, the first 30,000 dollars were used up, of which 10% was paid as a minimum payment. Then, after April 1, another 5,000 dollars were withdrawn from the card. Thus, from May 1, the credit card debt will be 32,000 dollars, and the minimum payment will be 3,200 dollars. Deposit must be made before May 21st.
Banking seems extremely attractive to offer loans with a long grace period of one hundred days or more. As in the first case, the first settlement period for such cards is 30 days, and the customer can settle the bank debt within the next seventy days without additional interest.