In the first week of August I received
my United Mileage Plus Visa monthly invoice from the current owner of the card
business, Chase Bank.
The statement was for $1,241.93. I am a terrible customer, I have always paid my bills in full and on time. This time I decided to see what happened if I only paid $1000. What would the interest charges on $241.93 be?
You will not believe the interest rate. I guarantee you will not believe the interest rate that I have been charged.
I paid the $1000 of the $1,241.93 on time, online. The first week in September the next invoice arrived. The new total due was $970.68 of which $241.93 was the balance from the previous invoice, $712.31 were new charges and the “finance charge” was $16.44. (Total $970.68)
The APR (Annual Percentage Rate) listed
was 16.74% on an average balance of $1,155.68.
So what happened was that I wasn't charged interest on the $241.93 that I didn't pay, I was charged interest on the average balance of the whole $1,241.93 of which I paid $1,000. The net annual interest on my $241.93 loan turned out to be $16.44 times twelve months equals $197.28 which is 81.5% interest.
Horrifying isn't it? 81.5% annual interest rate on a credit card.
“But wait” as the carnival pitchmen
and TV high pressure sales people like to say..... I got the October
invoice that showed I had paid the full $970.68 September invoice including interest payment on time.
This time there was a new finance charge. The new charges on the
bill were $544.83 and the finance charge was $7.31 based on an
average balance of $522.90.
That means two things. First, I am being charged interest on a month for which there is no prior outstanding loan balance. I paid it off on time with interest. Now I am being charged interest on a period for which there was no borrowing. Second, adding the new $7.31 interest charge to the prior interest charge of $16.44 we get a total interest I am being charged of $23.75. No other fees are involved but finance charges -- interest.
Times 12 that is $285.00 interest on a loan of $241.93. The actual interest rate Chase Visa is charging me is 117.8%.
Rather high, wouldn't you say?
As a key founder of Mastercard and a
banker who devised many bank fees, I am appalled. I can not claim to
have ever invented a way to charge people 117.8% interest and write a
description of it that sounds legal and (this is the best part) claim
the interest rate is 16.74%
It cost me $23.75 to find out that the real credit card interest rate is 117.8%. You had better pay off your credit card bills immediately and never fail to pay on time. I have suffered for you.