Cryptic vocabulary makes interpreting credit card contracts difficult. Happily, you will find most of the terms credit card issuers use right here. Refer back to this glossary whenever you need help determining the meaning of creditor jargon.
Terms common to credit card contracts
|1.||Annual fee||8.||Minimum payment|
|2.||Annual percentage rate (APR)||9.||Over-the-limit fee|
|3.||Average daily balance||10.||Payment due date|
|4.||Balance transfer||11.||Periodic rate|
|5.||Cash-advance fee||12.||Previous balance|
|6.||Credit limit||13.||Purchases/new charges|
|7.||Finance charge|| || |
1. Annual fee -- A bank charge imposed each year for use of a credit card. It may also be called a membership or participation fee. It can range from $15 to $300 and usually gets billed directly to the customer's monthly statement. Many credit cards come without an annual fee.
2. Annual percentage rate, or APR -- A yearly interest rate that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the periodic rate and multiplying it by the number of billing periods in a year.
3. Average daily balance -- A common calculation method used to determine the payment due. It's determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card's monthly periodic rate, which is calculated by dividing the annual percentage rate by 12. A card with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that card had a $500 average daily balance it would yield a monthly finance charge of $7.50.
4. Balance transfer -- The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers coming in and balance-transfer fees to discourage them from going out. Make sure if you're making a balance transfer you know exactly when the introductory rate expires.
5. Cash-advance fee -- A charge by the bank for using credit cards to obtain cash. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as follows: "2%/$10." This means that the cash advance fee will be the greater of 2 percent of the cash advance amount or $10.
The banks may limit the amount that can be charged to a specific dollar amount. Depending on the bank issuing the card, the cash advance fee may be deducted directly from the cash advance at the time the money is received or it may be posted to your bill as of the day you received the advance. The cost of a cash advance is also higher because there generally is no grace period. Interest accrues from the moment the money is withdrawn.