Credit card tiered interest rates and its implication on calculation of outsanding balance

Do you know that beginning July 2008, there's some changes towards your interest rates in your credit card ? According to BNM directive issued last year, you'll be offered a better credit interest if you're a good paymaster. The purpose of this was to promote prudent financial management and inculcate good financial discipline among credit card users in Malaysia.

According to BNM, on average, one-third of credit cardholders use their credit cards as a payment instrument, settling their credit card outstanding amount in full every month. More than half of cardholders pay at least the minimum amount due promptly and roll over the remaining balance. For the benefit of credit card users who have a good track record of settling their credit card balances which are due each month, promptly for 12 consecutive months, the finance charge will be reduced from the maximum of 18% per annum to not more than 15% per annum. The ceiling rate of 18% per annum will still be applicable for other cardholders.

The rate are as follows
1. With prompt minimum repayment for 12 months within 12 consecutive months.
You will enjoy 15% per annum of the total outstanding balance from the 13th month.
2. With prompt minimum repayment for 10 months and more within the last 12 consecutive months. You will enjoy 17% per annum of the total outstanding balance from the 13th month.
3. Credit cardholders who do not meet the above criteria. You will be charged 18% per annum of the total outstanding balance.

In addition, with the introduction of the tiered interest rates, the following fees will apply
1. Late Payment Fees - Minimum of RM10 or 1% of total outstanding balance as at statement date, whichever is higher, capped to a maximum of RM100.
2. Interest Free Period for Retail Transactions - A 20-days interest free period on all retail transactions, provided all outstanding balances of the previous month, as per the monthly statement, are fully settled.
3. Where the Interest Free Period is not applicable, finance charges as per applicable tiered rate per month will be levied on all retail transactions from the date the retail transactions are posted.

Note: Retail transactions exclude Cash Advance, Balance Transfer and any other credit plans.

That meant you'll won't be enjoying any 20 days interest free period for your current purchases if you have previous outstanding balance ! In addition, late payment fees have been increased from min RM5 to RM10 (or 1% whichever is higher) really a blow to consumer if you forgot/late in paying your credit card

To further understand this implication, here are some illustration
Illustration 1
Cardholder A has an outstanding balance of RM1,500.00 at the end of February 2007 and only repaid a sum of RM500.00. Cardholder A’s March 2007 Card Statement reflects the balance of RM1,000.00 rolled over from February 2007. Any Card Transaction performed by Cardholder A in the month for March 2007 will not enjoy the benefit of the Interest Free Period.

Illustration 2
Cardholder B has an outstanding balance in his Card Account for September 2007 but settles all outstanding balances in October 2007. Cardholder B’s November 2007 Card Statement shows no outstanding balance carried forward. Subsequently, Cardholder B maintains an outstanding balance for November 2007 and repays in full in December 2007. Cardholder B’s January 2008 Card Statement shows no outstanding balance carried forward. Cardholder B enjoys Interest Free Period for all Card Transactions performed in November 2007 and January 2008.