How does a credit card work?

Example. Under the terms of the loan agreement, the client was provided with a credit card with a limit of 20,000 rubles, a grace period of 50 days, an interest rate of 20% per annum, a cash withdrawal fee of 3%, a minimum mandatory payment of 10% of the amount and a payment date on the 30th of each month.

In September, the client used the card three times: on September 5 he bought a camera for 5,000 rubles, on September 15 he removed 2,000 rubles from an ATM, on September 25 he spent 1,000 rubles. on products. In the second transaction, a commission of 60 rubles will be debited from him. (3% of 2,000 rubles), in other cases there will be no additional costs, since the payment was made by bank transfer.

At the beginning of October (as a rule, on the 1st day), the client will receive a statement from the bank, which will indicate the total debt (5,000 2,000 60 1,000 = 8,060 rubles), the available limit (20,000 - 8 060 = 11,940 rubles), the end date of the grace period (October 25, since the first use of the card was made on September 5), the minimum payment that he must make on October 30 (8,060 * 10% = 806 rubles).

If the customer pays the entire amount owed (RUB 8,060) before the end of the grace period (October 25), then he will not be charged interest, and the next grace period will start from the date of the next purchase. If expenditure transactions were also carried out in October, then they must be added to the amount from the statement.

If it is not possible to pay off the debt in full, then the client must deposit to the account an amount not less than the obligatory payment (806 rubles) by October 30, otherwise the specified 10% of the debt will be considered overdue. The grace period will resume only after the full repayment of the current debt.

Interest will be charged only if the client has not met the grace period. For example, since September he no longer used the card and paid 806 rubles. by October 30, then interest in the amount of 222.95 rubles will be added to the amount of the minimum payment for November:

(for the period from 5 September to October 30)

(for the period from October 30 to October 31, since the client has made the minimum payment, the first of the amounts taken has decreased)

(for the period from September 15 to October 31)

(for the period from September 25 to October 31)

Thus, the examples considered show that a credit card is a convenient payment instrument that allows you to avoid issuing many small loans. In addition, this type of lending assumes the dependence of the accrual of interest on the actions of the borrower, which allows the latter to save on interest with proper planning of its own expenses.