How Commercial Bank Calculates Finance Charges for Credit Cards

If you are using one of Commercial Bank Credit Cards or planning to get a Commercial Bank Credit Card soon, it is better to know how Commercial Bank calculates financial charges for your credit card purchases. If you haven’t used any credit cards yet or planning to get another card or would like to change to another, here you can read more details about how to choose your best credit card.

Commercial Bank Financial Statement

The Commercial Bank normally sent Financial Statement to the Card holder at the end of each Billing Period, which is the Statement Date, with the following details:

  • Total amount outstanding on the Card Account (“the Total Outstanding”)
  • The Minimum Payment Due from the Card holder for the current Billing Period
  • Past due, over limit due and the total Minimum Payment Due in respect of the Total Outstanding
  • The date by which the payment must be made to the Bank (“the Payment Due Date”)

Generally the Minimum Payment Due is 5% of the Current Balance which is subject to a minimum amount of Rs 500/= and Over-limit Amount. You can avoid the Financial Charges by making full payment before the Payment Due Date, or at least you can avoid Late Payment Fee by paying the Minimum Payment Fee before the Payment Due Date. You will be entitled to pay Financial Charges even if you made part/minimum payment before/on/after payment due date or full payment is made after the due date or no payment is made.

Now, lets look at how Commercial Bank calculates financial charges for your credit card purchases.

Commercial Bank Credit Cards‘ Interest Rate : 24% per year.
Late Payment Fee : Rs. 750.00
Payment Due Date : 21-November-2016
Current Billing Date : 30-November-2016
Previous Billing Date : 31-October-2016

Financial charges for partial payment.

If the outstanding is partly settled on or before the due date card holder will be liable for interest on the carried forward balance calculated on a daily basis, form the last statement date, until the date on which the total closing balance is settled or till new statement date, at a rate to be determined by the Bank.

Lets consider following transaction details:

Date Description Amount
1 October 2016 Card Opening Balance Rs 0.00
5 October 2016 Purchase Rs 50,000.00
18 October 2016 Purchase Rs 60,000.00
31 October 2016 Closing Balance (Total Outstanding) Rs 110,000.00
 
1 November 2016 Card Opening Balance Rs 110,000.00
10 November 2016 Payment made Rs 35,000.00
19 November 2016 Payment made Rs 14,000.00

This Card Holder does not pay the full amount by the due date, but has made two partial payments. Therefore the Commercial Bank will impose only interest (he paid more than minimum payment – Rs 5,500.00 (5% of Total Outstanding) – so there will be no Late Payment Fee) which will be calculated as follows:

Financial Charge Calculation:

A Rs 110,000.00 X 24% /365 X 10 days (1/11/2016 – 10/11/2016) Rs 723.29
B Rs 75,000.00 X 24% /365 X 9 days (11/10/2016 – 19/11/2016) Rs 443.84
C Rs 61,000.00 X 24% /365 X 11 days (20/10/2016 – 30/11/2016) Rs 441.21
Total Interest = (A + B + C) Rs. 1608.34

Financial charges for partial payment, but less than Minimum Payment Fee.

If the card holder pay is settled less than the Minimum Payment Fee on or before the due date card holder will be liable for not only interest which is calculated based on the carried forward balance calculated on a daily basis, form the last statement date, until the date on which the total closing balance is settled or till new statement date, but also Late Payment Fee.

Lets consider following transaction details:

Date Description Amount
1 October 2016 Card Opening Balance Rs 0.00
5 October 2016 Purchase Rs 50,000.00
18 October 2016 Purchase Rs 60,000.00
31 October 2016 Closing Balance (Total Outstanding) Rs 110,000.00
 
1 November 2016 Card Opening Balance Rs 110,000.00
10 November 2016 Payment made Rs 5,000.00

This Card Holder does not pay the full amount by the due date, but has made one partial payments which is less than the minimum payment amount Rs 5,500.00 (5% of Total Outstanding). Therefore the Commercial Bank will impose a financial charge including Late Payment Fee and Interest:

Financial Charge Calculation:

A Rs 110,000.00 X 24% /365 X 10 days (1/11/2016 – 10/11/2016) Rs 723.29
B Rs 75,000.00 X 24% /365 X 20 days (11/10/2016 – 30/11/2016) Rs 986.30
C Late Payment Fee Rs 750.00
Total Interest = (A + B + C) Rs. 2459.59

Financial charges for partial payment made after the due date

Following calculation will be use if you paid your payments after the due date.

Lets consider following transaction details:

Date Description Amount
1 October 2016 Card Opening Balance Rs 0.00
5 October 2016 Purchase Rs 50,000.00
18 October 2016 Purchase Rs 60,000.00
31 October 2016 Closing Balance (Total Outstanding) Rs 110,000.00
 
1 November 2016 Card Opening Balance Rs 110,000.00
 
1 December 2016 Payment made Rs 35,000.00

This Card Holder does not pay any amount until the due date. Therefore the Commercial Bank will impose a financial charge including Late Payment Fee and Interest:

Financial Charge Calculation:

A Rs 110,000.00 X 24% /365 X 30 days (1/11/2016 – 30/11/2016) Rs 2169.86
B Late Payment Fee Rs 750.00
Total Interest = (A + B) Rs. 2919.86

Stamp Duty

In this calculation I dint consider Stamp Duty. But you need to be aware about Stamp Duty when you are doing any purchase outside Sri Lanka (including online). With effect from 01 January 2016, Stamp Duty will be charged only for your Credit Card transactions performed at merchants based outside Sri Lanka. The new Stamp Duty is charged at Rs 25.00 for every Rs 1,000.00 or part for all such transactions.

By considering above three situations, you can simply understand the benefits by paying the full amount before the Due Date. If you can’t pay full amount within the due date, at-least try to pay as much as you can to lower your financial charges.

Shanuka Wijeratne

Shanuka is a contributing writer at Moneta.lk. She is a curious traveller and careful spender who keeps her busy to find-out the best Credit Card promotions and deals in the city to help other people to save money by getting the best bang for the buck.

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