The number of banks is growing day by day and all the struggles for customers. Credit cards are a very convenient banking product and bankers use various advertising and marketing mechanisms to promote them. As a rule, creditors try to increase the free use of funds, which is called the grace period.
During this time, no interest is being used for using borrowed funds, but is it really? The offers are very attractive and in some cases, the interest-free credit can reach 200 days. What is a catch and is it really good for the average person?
How the grace period is calculated
The interest-free or soft loan mechanism has been used for a long time and works as follows:
- An interest-free credit card opens at the selected bank or arrives by mail.
- The settlement period begins – the period for which you buy the card; the bank, in turn, checks the costs and usually provides 30 days. The beginning of this period is often considered the moment of card activation (sometimes it is the starting point of the first card operation).
- The credit card grace period will also begin. During this period, the debtor is obliged to return to his creditor any funds provided. In order not to pay interest on the loan, it is sufficient to return the entire amount borrowed on time.
The period of interest-free drawing of bank finances is summed from the grace and settlement periods so that the amount is at least 50 days.
When you need to pay interest
In cases where the borrowed funds cannot be fully compensated, the Bank will start to charge interest on the money spent during the billing period. The end of the grace period is the date of the minimum payment, which is between 5 and 10 percent of the total amount of the debt, plus interest on the use of the loan.
At the end of the first equalization period (thirty Todays), the second and the following begin. It will act at the same time as the payment term. This means that if the debt from previous purchases is paid in time, the card can be used for a new one.
Specificity of calculations
Determining the amount of accrued interest directly depends on the length of two periods: payment and settlement. For a simpler explanation and understanding, it is better to resort to a specific example.
The start of the billing period is considered to be the moment if the credit card is accepted with an interest-free period in the bank or in some cases its activation. If we assume that the card activation date was March 1 and 30,000 dollars were spent per month, then April 1, ie after 30 days, will be the end of the first billing period.
The bank will summarize and find out how much money has been spent over the last month and provide the client with a debt statement. In this case, it will be 30 000 dollars. Information can be provided in several ways:
- SMS alerts;
- Internet banking;
- calls to the call center of the bank.
This will be followed by a payment period. Suppose it’s 20 calendar days. It turns out that it will end on April 21st. Summing up both periods, we get 51 days, which bankers represent as a credit card or interest-free period.
It turned out that a client who is of the need to pay interest on the use of bank money will have to pay all costs by April 21. This does not mean that the entire amount must be returned at the same time, it can be divided into several payments, the main thing is that by April 21, the entire amount should appear on the card (30,000 dollars in this example).
If you need more resources
It is important to note that a credit card in the non-interest period does not prohibit further use of credit facilities at the time of grace. If the credit limit allows, of course, you can continue to purchase with a credit card. If 5,000 dollars are needed in addition to the borrowed funds and are on the card, the client has the right to use them, but in order not to pay interest, it will be necessary to return not 30,000 dollars, but in April everyone borrowed 35,000 dollars.
If you pay off the debt, it doesn’t seem to be possible, it doesn’t matter. Until April 21, the client will need to make a minimum payment amount. In some cases, it ranges from 5% to 10%.
For this example, assume that the minimum payment should be 10% of the amount owed. 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 seek to provide to their customers in writing. They reflect transactions for the billing period, ie until 1 April.
The following calculation deserves special attention. The period will run from 1 April to 1 May. Until April 21, two periods overlap each other. This means that if the debt is not paid in full by 21 April, the minimum payment amount will be calculated taking into account the total debt from 1 May.
Under the option under consideration, the first 30 000 dollars were exhausted, of which 10% was paid as a minimum payment. After April 1 another 5,000 dollars were withdrawn from the card. The credit card debt will thus be 32,000 dollars from 1 May, and the minimum repayment will, therefore, be 3,200 dollars. You will need to deposit by May 21st.
Banking seems to be very attractive offering loans with a long grace period of one hundred days or more. The first billing period for such cards, as in the first case, is 30 days and the client can repay the bank debt without any special interest within the next seventy days.