What is a Credit Card?
It is a payment instrument that you can use to purchase something instead of using cash. In theory, when you pay for something using a card, that amount is owed from the bank and need to be paid back.
Think of it like a fast loan that you can pay back when your salary kicks in. To understand more on how it works, let’s take a look at the basic features such as follows:
Annual Fee
A credit card has a fee that is charged annually to the cardmembers for the benefits that come with it.
Some of them don’t have an annual fee, whereas there are also cards with an annual fee waiver condition.
To get your credit card annual fee waived is simply by making one transaction per month for 12 consecutive months, or meet the card's minimum spending required in a year.
Interest Rate on Purchases
In Malaysia, there are 3 tiers of annual interest rates chargeable on the outstanding balance based on the cardholders’ repayment habit:
15% p.a. (1.25% p.m.) Tier 1: for cardholders with prompt payments for 12 consecutive months.
17% p.a. (1.42% p.m.) Tier 2: for cardholders with prompt payments for 10 months or more in the last 12-month cycle.
18% p.a. (1.50% p.m.) Tier 3: for cardholders with payments of less than 10 months in a 12-month cycle.
If you consistently pay your card bills in full and on time, then you don't have to worry about interest rates at all.
Interest-free Period
This is a grace period whereby you can enjoy zero interest on your outstanding balance. This period starts from the date of issuance of your credit card statement until the statement due date.
Credit Limit
This is the maximum amount that a lender can extend to you for a particular line of credit. If you earn a monthly income of RM3,000 or less, the bank will usually set a credit limit to 2 times your salary.
For those earning more than RM36,000 per year, there is no limit to the credit that will be assigned to you. You can also own multiple cards from multiple banks with varying credit limits.
Cash Advance
Cash advance is a facility that allows you to withdraw money from your credit card through ATM much like a debit card.
Not to be confused with a cash loan facility whereby you can borrow a certain amount from your card and repay it in instalments, which is similar to an EPP.
A cash advance is subject to a cash withdrawal fee and interest rate of 18% p.a., which is calculated daily until you pay up the withdrawn amount in full.
Billing or Statement cycle
Each credit card transaction you make will be posted in your credit card statement. This statement, which itemises all your transaction histories for the past month, will arrive at your mailbox or inbox in the current month.
It is important to take note of the statement due date so that you will not be charged with unnecessary fees and charges on the outstanding balance.
Minimum Monthly Payment
In your statement cycle, you are allowed to make a partial repayment of your card bill to avoid being charged with a late finance fee on the outstanding balance.
However, the remaining amount of your outstanding balance will still incur finance charge. The minimum monthly payment is usually at 5% of the total outstanding balance, which must be settled before the statement due date.
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