Compare terms and fees to get the best card
Hendarsyah Tarmizi The Jakarta Post Jakarta
Tight competition has prompted many local banks to try any strategy possible to compete for a slice of the credit card business pie.
Many banks have, for example, fielded their sales representatives in major shopping malls to lure new investors in addition to their aggressive campaigns through print media and televisions.
A number of incentives and facilities such as free membership, cash prizes of up to Rp 1 billion, overseas trips or free interest are offered as part of the campaigns.
That is a business. Every single cent of the money spent by the card issuers in their sales campaigns will, however, have to be passed on to customers. So be careful, big prizes, facilities and conveniences offered by card issuers can be misleading. Banks could, for example, offer a free membership fee but on the other hand charge unusually high interest rates through a method that is not disclosed to their customers.
In the United States there is a law called Fair Credit and Charge Card Disclosure Act to force credit card companies to display all their terms and charges in easy-to-read tabular form so that consumers are informed of the exact cost of acquiring a particular card before doing so.
As cardholders in Indonesia still lack protection, you should be more careful in choosing a credit card, a form of borrowing that often involves charges. Credit terms and conditions affect your overall payments. So it is wise to compare terms and fees before you agree to open a credit or charge card account.
The following is some important advice issued by U.S. Federal Trade Commission to help people understand the terms that generally must be disclosed in credit card applications or in solicitations that require no application.
- Annual Percentage Rate: The APR is a measure of the cost of credit, expressed as a yearly rate. It also must be disclosed before you commit to the account and on your account statements.
The card issuer also must disclose the "periodic rate" -- the rate applied to your outstanding balance to calculate the charge for each billing period.
At the latest, you also must receive information, before you commit to the account, about any limitations on how much and how often your rate may change. - Free Period: Also called a grace period, a free period lets you avoid being charged for credit by paying your balance in full before the due date. Knowing whether a card gives you a free period is especially important if you plan to pay your account in full each month. Without a free period, the card issuer may impose a charge for credit from the date you use your card or from the date each transaction is posted to your account. - Annual Fees: Most issuers charge annual membership or participation fees. In Indonesia, they charge their customers between Rp 100,000 to Rp 250,000. Annual fees for "gold" or "platinum" cards are generally higher. - Transaction Fees and Other Charges: A card may include other costs. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee whether or not you use the card. - Balance Computation Method for the Finance Charge. If you do not have a free period, or if you expect to pay for purchases over time, it is important to know what method the issuer uses to calculate the charge for credit. This can make a big difference in how much of a charge you will pay - even if the APR and your buying patterns remain relatively constant. - Average Daily Balance: This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added to the billing cycle. The total is then divided by the number of days in the billing period to get the average daily balance. - Adjusted Balance: This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period are not included.
This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount. Some creditors exclude prior, unpaid charges on credit from the previous balance. - Previous Balance: This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid charges on credit.
Two-cycle balances: Issuers sometimes use various methods to calculate your balance that make use of your last two month's account activity. Read your agreement carefully to find out if your issuer uses this approach and, if so, what specific two- cycle method is used.
If you do not understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.
Other Costs and Features: Credit terms vary among issuers. When shopping for a card, think about how you plan to use it. If you expect to pay your bills in full each month, the annual fee and other charges may be more important than the periodic rate and the APR, if there is a grace period for purchases. However, if you use the cash advance feature, many cards do not permit a grace period for the amount due -- even if they have a grace period for purchases. So, it may still be wise to consider the APR and balance computation method. Also, if you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations.