How many of us really ever read the T&C’s when signing up for a credit card? Not many, right. Although it might feel like we’ve been given a bottomless pit of wealth, we don’t think about all the hidden costs that come with a credit card. Keep reading to find out how creditors charge you more for owning a credit card.
We all know what interest is, but did you know that banks charge interest daily, or that banks may charge you the repo rate over and above the interest rate? You may even pay interest immediately every time you fuel up?
Yes, most credit providers classify fuel purchases as cash withdrawals!
Keep reading to find out which fees banks charge us with, just for having a credit card.
Paying interest on fuel purchases
You may be charged interest from day one every time you use your credit card to fuel-up. That’s because some credit cards see fuel purchases as cash withdrawals. And cash withdrawals don’t fall under the 55-day interest-free benefit of the card.
Applying for a garage card might not be in your best interest either. Because your garage card is linked to your credit card or cheque account, you’ll still being charged interest.
The interest rate charged on petrol cards will differ depending on which account it is linked to. If you have your credit card linked, you’re be charged credit card rates. And if you have your cheque account linked, you’ll be charged depending on your credit profile.
So if you do own a garage card and have your cheque accounts linked, make sure that your credit score looks drop dead gorgeous.
Do credit card fees live beyond the law?
Credit providers are not allowed to charge you more than what is listed on section 101 of the National Credit Act (NCA). This includes “service fees” and the NCA cap this fee at R60 a month, unless an exemption applies.
Although it is legal to charge credit card holders a monthly fee, is it legal for banks to include a “card fee” or a “credit facility fee” over and above the monthly service fee?
According to Business Live, Nthupang Magolego, a senior legal advisor at the NCR, said that the act provided a “closed list” of fees that credit providers could charge. However, “card fees” was not on that list. Magolego said that the regulators would investigate the issue and take appropriate action were any illegal fees had been charged.
Trudie Broekman, a specialised consumer law attorney, has pointed out that in the case of credit card account, the credit facility (overdraft) and the financial service account (cheque/current account) are one in the same thing. Broekman argues that it seems artificial to separate these components and charge separately for these charges. So, are banks then allowed to charge us separately for these services?
Broekamn has said that it can be argued that banks are in breach of the act when charging more than R60 for monthly credit card fees.
Broekman has stated that “this contention should be tested, and I would be eager to represent a group of credit card holders, in taking the complaint to the National Consumer Tribunal to reach clarity on this aspect.”
Repo rate is linked to the interest rate
According to the National Credit Regulations (NCR) the repro rate directly affects the interest rate that banks charge us for credit. The means that our interest rates may increase as the repo rate increases.
What is the repo rate? The repo rate is the benchmark interest rate that the Reserve Bank charges banks for lending money. Changes made to the repo rate affect the prime lending rate, which in turn affect the lowest rate that banks start lending to customers. The repo rate is currently sitting at 6.5%.
How does this affect our credit card interest rates? The NCR states that the maximum interest rate that banks are allowed to charge consumers for unsecured credit transactions is the repo rate plus 21% per year. That’s 21% plus 6.5%
Currently banks are not allowed to charge you more than 27.75% in interest. However, because the interest rate is closely linked to the repo rate, the interest rate changes as the repo rate changes. If the repo rate goes up with 1%, your interest rate goes up by 1%.
Banks know that majority of us don’t read the T’s & C’s when signing a contract. That puts them in a powerful position. They also know that if you do change the contract, they don’t have to put up with you as a client.
Next time you use your credit card, think about what you’re paying for. It might say R100 on the merchant slip, but what does it say on the bank statement?
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