Do you know how your credit card works?
How does a credit card work?
Do you really know how your credit card works? Calculation of interest, minimum monthly payment due, cash advance, credit score, purchase insurance program: our expert answers the most frequently asked questions about how your payment solution, the credit card, works.
1. How does interest on a credit card work?
"Following the issuance of your monthly statement, you have 21 days (grace period) to reimburse your credit card," explains Pascale Arès, product manager, credit cards at the National Bank. If you pay the full amount owed by the due date shown on your monthly statement, you will not pay any interest on your purchases. Otherwise, interest will be calculated and charged to your account. "
Here's how interest is calculated and what you need to know:
The rate of the card is annual
Each card has an annual interest rate, so it's an interest rate calculated over a 12-month period. For example, for an annual rate of 20.99%, divided by 365 days, we get a daily rate of 0.0575%. You can then multiply the amount of your purchase by that daily rate and by the number of days since the date of purchase shown on your monthly statement.
For example, you buy pants for $ 100. Once your statement is received, you will only repay the minimum monthly payment due. At an annual rate of 20.99%, so a daily rate of 0.0575%, you will pay approximately $ 0.06 per day in interest, on the full amount. For a 30-day period, the accrued interest will total $ 1.73.
Interest is calculated on the total amount of your purchases
A majority of people don't know that if the amount owed is not paid in full, interest will be calculated on the total amount of your purchases, not on what you have left to pay. This calculation is made on the basis of each of the dates on which the transactions were entered on your statement.
“You make a purchase of $ 30 on May 1, then another of $ 70 on May 10. Only refund $ 25 of a total purchase of $ 100? Interest will be calculated on the $ 100 from the date each purchase was entered on your statement. For an annual rate of 20.99%, it would be a daily rate of 0.0575% as of May 1 on $ 30 and then, this same rate would be applicable as of May 10 on $ 70. Please note that interest is calculated only on your purchases. There is no interest charged on interest. "
Tip: To find out the interest payable on an amount based on your payments, you can use the Financial Consumer Agency of Canada (FCAC) calculator.
· Interest applies on cash advances upon withdrawal
The cash advance is the cash that you withdraw from your credit card account or the transactions that can be directly converted into cash (ex: checks, bank transfers, lottery transactions, etc.) . Interest begins to accumulate as soon as this type of transaction is made. Unlike purchases, you will not have a grace period to make your refund. Read your credit card agreement carefully, the interest rate is usually higher for cash advances than for purchases. National Bank customers can easily find this information on their monthly statement.
Tip: To lower your interest charges, consider a card with a lower interest rate. “To give you an idea, the National Bank's Syncro card offers an annual rate that can be as low as 8.9% on purchases, and 12.9% on cash advances. This can be an attractive option for consumers who do not pay off their balance in full each month. "
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2. How is the minimum monthly payment due calculated?
There may be times when you may not be able to pay off your full credit card balance every month. This is why financial institutions, in accordance with what is provided for in the Consumer Protection Act, always require a minimum payment due.
According to the Consumer Protection Act in Quebec, for all consumers who signed up for a new credit card after August 1, 2019, this payment must correspond to 5% of the total value of their balance (purchases, interest, fees , etc.) or $ 10 minimum, whichever is greater. For customers who have obtained their card before this date
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