Compare terms and fees to get the best card

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.