Buy Now, Pay Later Is The Success Of The Credit Card

779 words - 4 pages

The Credit Card?
The credit card has been around since the 18th century in Europe, but only to be introduced to the United Stated in 1920’s by individual firms such as hotels and department stores. The simple idea behind the introduction of credit cards is to allow people who could not afford to buy expensive items but have the ability to repay them in installment till the full cost of the items is reimbursed (Marples, 2008). The reason credit card is a success is because customer love the concept of ‘buy now, pay later’. It is very convenience because they do not have to carry a large sums of cash and there are firms offering 0% interest if they settle before a specific period. According to Central Bank of Malaysia (2014), there are 22 banks and 3 non-banks offering credit cards in Malaysia; one of them is Maybank. Maybank offers around 27 different types of credit cards; the most common will be the classic and gold card.
How does Maybank profits by offering credit cards to their customers? Maybank like any other providers earns from fees such as annual fee, cash advance, and past due. Maybank charges an annual fee of RM60 (single) & RM90 (double) for ordinary card and RM130 (single) & RM195 (double) for gold cards. As for platinum cards, the fee could be as high as RM230.
Credit cards interest rate is constantly compounding; means the interest charges are added into the principal so that the total debt will continue to grow exponentially. Customers will be given 20-days grace previous to settle their outstanding amount at 0% interest. Assume a customer had an outstanding of RM 1,000 unsettled, Maybank charges 18% interest on the outstanding. Now the original debt increased from RM 1,000 to RM 1,180; RM 180 profit. In the next month, assuming the customer did not use the credit nor did he settle it, Maybank will charge another 18% to the RM 1180, increasing the outstanding to RM 1,392.40. Those who pay punctually for 12 consecutive months will qualify for 15% p.a. whilst those who miss the due date for one or two payments within a 12-month cycle will qualify for 17% p.a. However those who are inconsistent in payment will be charged at maximum interest rate of 18%. Late repayment penalty is RM5 or 1.00%...

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