It might be easy to hand a credit card over the counter every time we’ve need a little retail therapy, but few of us actually know the terms and conditions associated with the cards we so frequently swipe. A whopping 89.4% of Australians don’t pay attention to the find print on their credit card contracts, according to a recent survey by leading credit card comparison website CreditCardFinder.com.au. Even those of us who do read the fine print aren’t doing much better, 77.8% of Australians don’t understand their credit card terms and conditions.
It’s a bit embarrassing, but who can blame us? Credit card contracts are full of sneaky euphemism and enough confusing bank-speak to drive even the most cautious of us away.
By Michelle Balogh, Money Maven.
‘Signing up to a credit card is a major financial commitment that shouldn’t be entered into lightly,’ says Jeremy Cabral, Publisher of CreditCardFinder. ‘Glossing over the terms and conditions and ignoring the fine print is not a wise move as you could be agreeing to pay more than you can afford and end up forking out hugely on additional charges and fees.’
We’ve rounded up some commonly misunderstood terms to shed a little light on the murky world of fine print:
1. Cash Advances: A cash advance simply refers to any time you use your credit card to withdraw cash at an ATM. This is an easy habit to get into, particularly when heading towards the end of a pay period (you’re being paid tomorrow, you can afford those new Louboutins right?). But cash advances bear their own set of terms and conditions (T&C’s).
Cash advances will result in a cash advance fee and will also be charged higher interest than purchases that you have made with your credit card directly (typically upwards of 20% p.a).
It’s also important to note that you will be charged interest from the day you make a cash advance, there is no interest free period, so it is best to keep these to an absolute minimum.
2. Interest Free Days: ‘interest free days’ refers to the maximum number of days you will go without have to pay interest on your purchases. That’s maximum, not minimum or guaranteed, so watch out! Whether or not you get the full number of interest free days will depend on your billing cycle.
You need to make a purchase on the first day of your billing cycle to take advantage of the maximum number of interest free days. If you make a purchase on the 20th day of your cycle then you will only benefit from 35 interest free days. Strategic shopping and a little T&C savvy could mean keeping as many of your dollars in pocket as possible.
Another little note – you must make the minimum repayment every month or you may lose your interest free days all together!
3. Balance Transfer: this allows you to transfer your current credit card balance to another institution that is not funded by the same bank. The benefit of this is that it allows you to repay your balance at a much lower rate for a set period.
Sounds great, however if you don’t manage to pay off the balance by the end of that period, the interest rate will return to the standard variable interest rate, or the cash advance interest rate. This means that if it takes a long time to pay off your debt you may end up paying more than you would have had you not made the balance transfer. Ouch!
4. Revert Rate: this is the interest rate that will kick in if you’ve made a balance transfer and haven’t managed to fully prepay your balance by the end of the set period.
5. International Transaction Fees and Online Shopping: Most of us know that when we make purchases in foreign countries we will be charged an international transaction fee (usually 2 to 3% of the purchase amount). What we often forget is that shopping online from overseas retailers can also incur this fee. Be aware of what country your favourite online stores are based in and what currency you are using to make your purchases. And pray that all your favourite stores will eventually make it to Australia!
For more: finder.com.au
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