There’s a lot to love about credit cards. From being able to shop online, make purchases within seconds and dispense with heavy, cash-filled wallets, using credit cards comes with lots of benefits. And these certainly aren’t the only ones.
Experienced credit card holders will tell you that credit cards have lots more useful facilities that many people don’t know about or use—such as cash advances and promotions that let you buy things at 0% interest.
Facilities most banks or financial institutions offer
Credit cards let you do a lot more than just pay for things using the bank’s money (bearing in mind, of course, that you’ll have to pay that money back in full when it’s due at the end of the month).
In fact, most credit cards come with a range of other useful facilities that can be very useful in selected financial situations.
We’re talking about situations like having to make a big ticket purchase but not wanting to pay interest, or needing to withdraw some cash at an ATM using your credit card.
Well, you’re in luck. Watch out for these useful facilities many credit cards offer:
At the end of the month, after a few too many shopping sprees at Tsim Sha Tsui, your current or savings account might be as dry as a desert.
That’s when your credit card’s cash advance facility can come in handy. It enables you to use your credit card at an ATM to withdraw cash, up to your credit limit. You then pay for that cash at the end of the month when you receive your monthly bill.
But before you go skipping from ATM to ATM with your credit card in hand, know that this is one credit facility that should be used sparingly, because:
- You are usually charged a fee amounting to 3% of the amount you’re withdrawing or $100, whichever is higher, whenever you use the cash advance facility.
- You’ll have to pay daily interest on any money you withdraw using the cash advance facility until you pay it back. This is typically to the tune of approximately 2% to 3% a month, or +15% per annum.
0% interest instalment plan
You’ve probably seen those ads promising “0% interest for 12 months” at department stores or furniture and electronics retailers, but only if you sign up for a particular credit card.
When you enjoy these promotional rates, it means that you can use your card to make a big ticket purchase at eligible stores, and then repay the bank in monthly instalments, interest-free. This is a great way to buy big-ticket items like that new laptop you’ve been eyeing without having to cough up a huge amount of cash upfront.
Of course, you’ll have to make sure you pay your installments on time and in accordance with the rules set out by the retailer, which might look a lot like the following:
- Missed payments: Failing to make a payment on time or missing one altogether means you get slapped with the very high standard interest rate, usually of about 2.5% per month.
- Paying interest on your balance after the end of the promotion: 0% interest promotions usually last for a period of, say, 6 to 24 months. After the promotion ends, you get slapped with interest on the balance. That means you should not think you can get away with just making minimum payments over the promotional period, because that means you’ll be carrying a balance when the promotion ends.
- Prepayment penalty: If you want to pay off your entire balance in full instead of adhering to the monthly installment plan, you might have to pay the bank a penalty.
- No refund or exchange: If you’re not satisfied with your purchase, you might be barred from demanding an exchange or refund if you’ve successfully paid using an installment plan.
Foreign currency transactions
When you go on holiday, credit cards enable you to pay for things at overseas establishments, thereby letting you avoid carrying around huge wads of cash. Getting a credit card stolen is a lot less traumatic than losing your cash, as you just need to cancel your card and have every right to dispute fraudulent charges made by thieves.
However, this does come at a price: you’ll be paying foreign currency transaction fees.
Most banks and FIs calculate foreign transaction fees in the following manner:
- For US dollar transactions, the amount will be converted to Hong Kong dollars on the date the purchase is made. However, if you are effecting a transaction that’s in a currency other than USD (eg. AUD, JPY, etc), the currency will first be converted to US dollars before being converted to HKD. All currency conversion is made based on the wholesale interbank rates OR the rate set by the government, and will be decided upon by the card association, ie. UnionPay, VISA, MasterCard or AMEX.
- No matter what currency is being converted into HKD, you will be charged a conversion fee, usually amounting to about 1.95%.
- Finally, your bank or FI will charge an administrative fee, ranging from 1.5% for VISA/MasterCard or 2% for AMEX cards, while 0% for UnionPay.
Altogether, that means you’re paying an additional 2.5% to 3% each time you make a foreign currency transaction. So, keep an eye on the cash rebate programs among overseas spending as a smart consumer that would be a balance-off toward the fees!
When you owe money on various credit cards, you can use the balance transfer facility to transfer your credit balances to the card with a lower interest rate.
For instance, let’s say you owe quite a bit of money on three credit cards that each charge 26% interest. Using the balance transfer facility, you can transfer all these outstanding balances to a card that is offering very low interest on any balance for a promotional period of say 6 to 12 months.
Obviously, this doesn’t come without some caveats, such as the following:
- Before making any new purchases on the credit card to which you are transferring the balances, make sure they still qualify for the lower or 0% interest rate, as that may not always be the case.
- Note that the promotional interest rates are usually only valid for a limited period of, say, 6 to 12 months. Make sure you pay off your balance before it ends and your interest rate skyrockets.
Parting note: Don’t forget to look out for sign-up bonuses and free gifts when deciding which credit cards to sign up for.
There are lots of rewards to suit all kinds of purchasing habits. Look out for our next instalment on the credit card rewards every Hong Konger should know about.