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Dirty Little Secret #6: The Cruel Cost of Cash Advances

A cash advance is a loan billed to your credit card. You can obtain a cash advance with your credit card at a bank or an automated teller machine (ATM) or by using checks linked to your credit card account.   Most cards charge a special fee when a cash advance is taken out. The fee is based on a percentage of the amount borrowed, usually about 2% or 3%.  

Some credit cards charge a minimum cash advance fee, as high as R20. You could get R100 in cash and be charged R20, a fee equal to 20% of the amount you borrowed. Most cards do not have a grace period on cash advances. This means you pay interest every day until you repay the cash advance, even if you do not have an outstanding balance from the previous statement.  

On some cards, the interest rate on cash advances is higher than the rate on purchases. Be sure you check the details on the contract sent to you by the card issuer. THE BOTTOM LINE: It is usually much more expensive to take out a cash advance than to charge a purchase to your credit card. Use cash advances only for real emergencies. 

Dirty Little Secret #7: Hidden or Unexpected Fees

Most people look for a card that doesn't have an annual fee, but did you know that there are other fees that can cost you more in the long run?

  • Late fees: Most cards charge a fee when payments arrive late, after the due date. Some banks wait a few days before assessing this fee, but many impose it the day after the payment was due. Some companies have a set fee, such as R75 or R100, while others charge a percentage, such as 5%, of the minimum payment due.

Just paying late fees twice in one year can cost you more than an annual fee. To avoid late fees, mail your payment in plenty of time to     arrive before the due date. If you pay your bill at the bank's branch or ATM, find out how long it will take to process your payment. Sometimes payments made at a branch or ATM are not credited for a few days.

  • Over-credit-limit fees: Most cards assess a fee if you charge more than your credit limit. These fees are charged each time you exceed your limit, so you could be hit with several of them during one billing period. Most banks have a set fee, such as R75 or R100, while others charge a percentage, such as 5%, of the amount you are over your limit. If you charge R2000 over your limit, with a 5% penalty, you will pay a fee of R100. This is in addition to interest charges.
  • Lost card replacement fees: A few companies charge people whose cards have been lost or stolen more than once or twice. These fees are usually R35 or R75.

Dirty Little Secret #8:Sneaky Ways They Calculating Interest

Most banks use an "average daily balance" method to calculate interest.

Average Daily Balance Step 1:     Every day, the bank adds your charges and payments to learn what you owed it that day. It adds these totals and divides that figure by the number of days in the month, to determine your average daily balance.

Step 2: Then the bank divides its annual interest rate by 12 (the number of months in the year) to get a "monthly periodic interest rate." For example, an 18% interest rate divided by 12 equals a monthly rate of 1.5%.

Step 3: The bank multiplies your average daily balance by the monthly periodic interest rate, to obtain the finance charge for that month. In calculating your daily balance, most banks include charges made during the month ("average daily balance, including new purchases"). Others exclude those charges until the next statement ("average daily balance, excluding new purchases"), which is to your benefit. 

Dirty Little Secret #9:Two-Cycle Billing Method 

Some banks retroactively eliminate the grace period by using a "two-cycle billing method." If you don't pay the entire balance, the finance charge is based on the sum of the average daily balances for both the previous and current months. (Some banks exclude new purchases from the finance charge calculation of their two-cycle billing method.)

You are only charged for a two-month time period in the first month you don't pay all charges. People who sometimes pay in full and sometimes leave a balance will pay about the same amount under the two-cycle method as with a "no grace period" card. THE BOTTOM LINE: You should know how your bank calculates finance charges

To apply for a loan you will have to fill out a short application form. You will then receive a FREE quote from well established, nationally recognized lenders. You do not need to decide now whether the loan is for you.

Just apply and compare the repayments to your current situation. There is no obligation on your part. If you decide that it is not for you, you simply do not have to accept the offer. You have nothing to lose and everything to gain.

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