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.