Social media is full of tips on how to maximise the interest-free period on your credit card, the problem is that credit cards in South Africa work differently from those in other countries.South African credit card providers calculate interest at a balance level, not a transactional level. What this means is that the 55-day interest free period is not calculated per transaction.
Typically, the billing period is 30 days, and a client has a further 25 days before the payment is due.What this means is that, if you make a purchase on the last day of the billing cycle, you effectively only get 25 days interest free.As Tumelo Ramugondo, the head of credit card at Standard Bank explains, the bank calculates interest daily on the outstanding balance you accumulate during the billing cycle.
A common misconception is that the R1 000 you paid would offset the interest on the first R1 000 item you bought on your card during the billing cycle. On day 20, you spend R1 000 and daily interest is now calculated on the outstanding balance of R4 000.On day 30, just before the billing cycle ends, you spend a further R1 000, bringing the outstanding balance to R5 000.The daily interest is still being calculated on the R5 000 outstanding balance, but, if you settle in full, the interest is not charged.
Here the banks do differ. For example, if your credit card is with FNB and Absa, because you did not settle your previous balance in full, all transactions in the second billing cycle will attract interest from the day of transaction, as this increases the outstanding balance.
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