The Complex World of Credit Card Interest Rate Charges

Complaints reaching the Fair Trading Commission have highlighted the fact that credit cardholders do not always understand how the interest charged to their account is arrived at. Our investigations reveal that the methods of calculating interest charges on credit card transactions can be complex. In several cases, cardholders have expressed the belief that they have been overcharged. Our findings are as follows:

  1. The interest rate applied is approximately 48% for Jamaican currency cards, and approximately 18% for US currency cards.
  2. Cash advances attract interest from the day the advance is charged to the cardholder’s account to the day that it is repaid in full. That is, there is no interest-free period for cash advances.
  3. There is an interest-free period, however, for purchases. If the balance on all purchases is paid in full before the interest-free period is up, i.e., before the payment due date, then no interest will be charged. Banks typically allow between 21 and 31 days for full payment on purchases before interest is charged.
  4. If, however, the balance is not paid off in full, interest is charged on all purchases from the date the purchase is charged to the account and not just on the balance left after a payment is made. If you are not aware of this, you may be surprised by the interest charges on your account!

Consider the following example: You start a credit card account on January 1st, 2002. For that month, you make a purchase of 00, which is recorded on your account on January 4th. A statement is issued on January 31st with a payment due date of February 8th. If you pay the amount in full by February 8th then no interest is charged. If you paid 00 on February 8th, you may think that interest will be charged on the remaining 00 only.

Instead you will find that, as the balance was not paid off in full by the due date, the banks would have calculated interest on the full amount of 00 from January 4th until February 8th and on the remaining 00 from February 8th until the next statement date.

The FTC is therefore recommending that credit cardholders pay more attention to the charges that appear on their statements, especially if those charges seem exorbitant. They are encouraged to ask questions to ensure that they understand the charges and to confirm the accuracy of those charges.