Credit cards come in the form of plastic cards issued by the bank that allow you to make purchases over point-of-sales (POS) systems in Singapore and all over the world. You can also make cash advances using your credit card by withdrawing money from ATM branches.
A credit card is considered to be a type of unsecured loan that gives you access to a line of credit. This means that you do not have to put up any assets as collateral to borrow money from the bank. Credit card issuers give a limit on the amount you can spend using your credit card. This is known as the credit limit, and is normally decided by how much you earn annually.
Some of the biggest card issuers in Singapore are Citibank, UOB and DBS Bank.
Typically, there are five parties involved in a credit card transaction:
These are credit cards issued by banks that allow you pay in Singapore Dollars. This type of credit card is often categorised as platinum, gold and classic, depending on your income bracket and credit. You can also request for supplementary cards for your family members. Any foreign currency denominated transaction with the credit card will be converted to Singapore Dollars. Card issuers usually include a foreign transaction fee (about 1% to 2%) as well as the foreign exchange bid-ask spread.
Banks sometimes work with large merchants such as department stores like Takashimaya to issue private label credit cards. When you use this type of card, you can enjoy discounts and privileges at partnering merchants.
Merchants or non-profit organisations partner with banks and institutions to issue credit cards with their names and logos. These are known as affinity or co-branded credit cards. This type of credit card works like a General Purpose Credit Card.
Cashback rebates are rebates you are eligible for when you make a transaction using your credit cards. The amount of rebates you accumulate in the month will get credited to your account at the end of the month or a quarter of a year, depending on the features of the credit card.
In Singapore, the cashback rate is generally around 1% to 3%. However, there is a wide range of cash rebate terms as well. For example, cash rebates might be tiered by spending categories and cashback rates might be tiered on cumulative spending over a period of time with a cap on maximum rebate.
Some issuers even offer more incentives when you spend overseas or use your card for online purchases. You can refer to SingSaver.com.sg's Cashback Credit Card comparison tool to select the best option based on your spending habits and needs.
Rewards points are points you accumulate with spending using your credit card that you can exchange for vouchers, air miles and gifts. It is part of a loyalty scheme that most banks offer to their cardholders.
Each bank has its own varying terms or ways that you can redeem rewards points. Some banks have expiry dates for rewards points, while some do not.
You can check SingSaver.com.sg's Rewards Credit Cards comparison tool for a quick summary of the incentives offered by each card issuer.
Credit card issuers usually use effective interest rate (EIR) to calculate the monthly interest charge. However, when the interest starts getting charge varies from bank to bank. Check with the card issuer to find out more.
If your outstanding statement balance is S$1,000 and the EIR is 25%, your interest charge is calculated by:
Outstanding Balance * EIR / Number of Days (365 or 366 on leap years)
(S$1,000 * 25%) / 365 = S$0.68
Banks like to advertise other interest rates, however the EIR is the best reflection of the cost of borrowing using a credit card. The average EIR for credit cards in Singapore is 25% to 28%. But the best thing about credit cards is the grace periods (also known as interest free period). From the moment you make a purchase until payment is due, you do not have to pay any interest. If you make payment in full, no interest or charge will be imposed.
If you have any unpaid balances from the previous month, you will not be eligible for the interest free period. The grace period differs from bank to bank.
Take note that there is no grace period for cash advances using your credit card. Always read the fine print of the application to understand all the additional fees and charges associated with the credit card.
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