Oct 3, 2007

On Credit Lines & Credit Cards

ST Oct 3, 2007
Using cash advance from DBS credit card? Beware this catch

DBS allows customers to borrow cash (credit line) for six-months with 0% interest from their POSB Everyday credit card for a fee.

However, every month, when you make payment to your credit card, all payment goes first to repaying your credit line until it is fully paid before it applies to your credit-card transactions.

Let's take this example: You draw a credit line of $1,000 for six-months with 0% interest on your DBS credit card for a fee and, in that same month, you charge another $500 to your credit card.

When you make a $700 payment for that month, the $700 will go fully towards repaying your credit line (after which you still owe $300 on the credit line). This means you incur finance charges (in the 10-25% annual percentage rate) on the $500 of credit card transactions automatically.

I called up DBS, and they say this is due to the payment hierarchy.

There is no way to specify how my credit card payment should be directed to.

OCBC has a much fairer credit-line scheme which I have used, as it allows you to specify which account you want to pay back, that is, I can fully pay my credit-card transactions monthly, and/or pay back a little of my cash line.

Chang Kui Yu

Quite apart from all that, please use your common sense. Can any bank really lend you money and charge you nothing? Only your mother could do that. And no bank is a mother.

Read the small print, please. “DBS allows customers to borrow cash (credit line) for six months, with 0% interest … for a fee." So instead of charging you interest every month for the sum you’ve borrowed, DBS charges you a fee.

Well, you can call it a “fee” or you can call it “interest”, but either way it’s money you have to pay the bank, for what you’ve borrowed.

According to the DBS website, the fee (which they call an administrative fee) is 2.5% of what you’ve borrowed. That is perhaps not that expensive, but it is also not as cheap as it may sound. An administrative fee of 2.5% should not be confused with, say, an interest rate of 2.5% p.a..

One difference is that interest is charged on what you actually owe in any given month, while an administrative fee is paid upfront on the entire sum you initially borrowed. No portion of the administrative fee is refundable, even though within 1 or 2 short months you may have dutifully repaid every cent you had initially borrowed.

Personally, apart from my mortgage, I simply do not live on credit. All my credit cards are paid in full by GIRO every month. Some years ago, I did sign up for DBS Cashline, but that was just to get a free umbrella. Since then I have not used the DBS Cashline even once, but I do still have that umbrella. Like my money, I save it for the rainy days.


Anonymous said...

Well, if Mr Chang was smart enough (actually don't need to be very smart to think of this idea), he would take the interest free cashline from POSB and just use another bank's credit lah! Why die die must use POSB/DBS credit card!

Anonymous said...

oh, and just to add, if a bank was gonna lend you money for free, you might as well take it and stick it in a bank to earn interest. Then again, interest rates in Singapore are so low, its hardly worth the effort. I used to do that with interest free student overdrafts in the UK and its a pretty nice supplementary income!

Anonymous said...

the letter writer was just stating that once you use the cash advance, any payment you make towards the card will pay off the cash advance principal at 0%, rather than towards any normal credit card spending at 24%.

in otherwords, if you use their cash advance for 20,000 for a 6 month period, then buy a plasma tv for 6k, you will end up paying 6k@24%/annum interested UNLESS you pay off immediately the 20,000 from the cash advance

Mr Wang Says So said...

Anon 12:30 am:

Yes I know. That is why my post begins with the words "Quite apart from all that ...".

Anonymous said...

I really cannot comprehend why MAS allows all these Banks a free hand in misleading the public over their 'generous' interest-free ready credit? The catch is always in the small print & the terms and conditions.

Isn't it a case of blatant dishonest advertising trying to catch the ignorant unsuspecting public?

Nothing is free in this world especially in this dog-eat-dog Stinkapore!!!

The same with the our rotten Gahmen. What happened to the carrots that our SM promised to Hougang constituency.

Anonymous said...

Mr Wang, don't you have to pay an annual fee for your DBS Cashline?

I kept mine for 1 year and when they ask me for that fee, I cancel it. Just like you, I don't use it at all.....I just borrow from my mother....haha!!!

Mr Wang Says So said...

Noooo lah! Don't ever pay annual fees for this kind of thing. Just call up and ask them for a waiver. Or if you just call up and say you want to terminate, they'll probably give you a waiver anyway.

If you do terminate, you have a good reason to sign up again and get another free umbrella ... or free shopping voucher .... or free thumbdrive .... or free something-or-the-other.

xtrocious said...

That guy never heard that there's no such thing as a free lunch ah?

And the admin fee is just a guise for interest and comes at a much higher rate given that it is paid upfront.

Anonymous said...

I'm curious. Did you really sign up for DBS Cashline just for a free umbrella?

Mr Wang Says So said...

Nah ... I signed up for a DBS credit card which came with a DBS cashline which came with a free umbrella.

RC said...

My friend in UK can borrow money on unsecured credit lines for up to 12 months on zero interest. He dumps all these money into time deposits which earns him net returns of 5% plus.

It's a virtually risk free way to earn money out of nothing. Only drawback is your credit report gets hit for the 12 months period.

shannon said...

there are so many hidden fees when it comes to credit cards. I would suppose, that your first bit of advice, was the best. Use your common sense! If it's too good to be true, it probably is.

everyone knows that credit card companies are only out to make money. DO NOT think that when they say, "0% financing" that it actually means that you won't be paying anything for your credit cards!!

Anonymous said...

As a matter of fact, Mr Chang is so darn stupid to trust the honesty and integrity of a Temasek Linked company (the one that lost 58 billion of Singapore taxpayer's hard earn money recently) such as DBS to not play dirty tricks like diverting payment first to the "0%" account instead of a regular credit card account, which effectively render the credit card useless until the "0%" amount is fully paid off.