So you are a shopping freak, just like me, and at the end of the month, you have no money in your pocket to buy what interests you. No worries, the banks have come out with a system to help you and me, the helping hand is known as Credit card.
Whatever you wish to buy, whether it is a fridge, watch or just clothes, don't need to pay immediately with cash, the credit card is at our rescue. But mind you, we need to repay the money back, as credit card works just like a loan. Instead of going personally to the bank and asking for a loan, we have the credit card with us. I am sure, just like me, you all also pay all your outstanding bills regularly and that too on time. Don't you?
Generally, I keep a reminder on my phone, to pay the bils, but God forbid, what if i missed the reminder for some reason or i do not have an access to the internet and many such issues? What happens then?
You are right, I am seen as a defaulter, and penalties are issued against me.
But then how much do i need to pay back? Is it the same amount or more? And if more than how much?
Here is the catch, whereby, you become a defaulter and banks tend to make money from your hard earned money. Anyways while using a credit card, we tend to pay more. for the item we have purchased, only because banks charge an interest. And when we forget to pay back on time, many other charges apart from just interest is added, making us pay a huge amount for the minor mistake we did that is forgotten to pay on time.
Lets look at this in details but in a laymans term.
Penalty amount levied is calculated is as though:
We all know that the interest is calculated on the outstanding amount * monthly percentage charged * 12 months * Number of days / 365.
This comes to a specific amount.
Before we are termed as a defaulter, the bank gives us a grace period, and if we are able to pay back during the grace period, which is generally around 60 days,(grace period varies from bank to bank) or else the bank starts imposing charges on us. Now being a defaulter, the bank levies charges like interest on the purchases one makes during the grace period, interest on the outstanding amount and being a defaulter a penalty charge is applicable, which differs from bank to bank, somewhere in the range of 300 to 500 Rs.
The interest rates goes on adding until you make the payment and charges are levied accordingly. Please note the interest rates also differs depending on te transaction one does. eg. If one makes a purchase his interest rate monthly would be roughly around 1.5% and if he withdraws cash from the ATM, his interest charge would be roughly around 2.5%, and if both are done, then banks would check, which one is higher and charge accordingly.
At the end of the day, anyways due to the habit of being a shopaholic we tend to pay more. And if we are a defaulter, then we tend to make the banks richer and our pockets go empty. So think twice before you swipe the card. In-case purchases are made, then be aware of the time when you have to repay, why pay the banks and make them richer from our hard earned money.