Why is there a 50 - 60 day interest free period on credit cards?

Chrysalis

its to draw people in.

There is no alternative (especially with way authorised overdrafts have gone) to an interest free loan. 60 day interest free on a credit card e.g. can be used as a payday loan, no interest, very attractive.

What they hope is people either forget, or over borrow (hence cannot pay off in full and accrue interest). Also there is those where circumstances change such as loss of job, or wage loss.

Since this has gone on for so long I expect overall its profitable.

When I first got my capital one classic card it had a £250 limit, and I think for about a year I used it every month and paid it off in full, so no interest and the limit kept increasing, long story short it eventually accrued around a 4k balance and I was servicing the debt for 2 years or so, I had periods where I would pay a load off but then I would spend again. In all that time I paid probably a 4k figure amount in interest. Due to my income going down recently, I paid most of it off and transferred the rest to a tesco card which has interest free for balance transfers. I probably would have paid it all off if my dad didnt tell me about using a balance transfer or if tesco declined me.

I am still using the card but there is now a DD setup to pay the full balance. So wont be any interest.

By the way I have found capital one also to be very leniant with charges. e.g. I accidently used my spare capital one card in march, and was no DD setup (as I havent been using the card), got a £12 fee, told them what happened and they removed it no issue. They have also twice removed £12 fees for me in the past on my main card also when I forgot to pay in time.

st999

If there wasn't why would anyone use a credit card?


I wouldn't.

dzug1

st999 wrote: »

If there wasn't why would anyone use a credit card?


I wouldn't.

Convenience - some people are prepared to pay for that

st999

Convenience - some people are prepared to pay for that

Then I would use a debit card, it would cost less than a credit card if there was no interest free period.

InsideInsurance

There is also a consideration for disputed transactions etc which certainly used to be more common back in the days of the old imprint machines.

It predates the internet where you can easily log in every day to see what transactions have gone through but had to wait for a statement to be posted out to you.

If interest was calculated from day 1 then any disputed transactions spotted when the statements come out would have already had interest charged and so the amount you have to pay to clear the balance wouldnt simply be balance minus disputed transaction value and IT systems were also more limited back then too with much of this sort of calculation done on an overnight batch process rather than realtime.

Whilst there is a selling point aspect to it there is also a historic part and removing product features can be expensive from a change management perspective and you may lose sales/customers to those that retain it even if the need for it has arguably gone/ weakened.

andyfromotley

st999 wrote: »

If there wasn't why would anyone use a credit card?


I wouldn't.

because some of us love buying stuff even if we cant afford it!! Check out my sig, i'd love to say that was built up paying only essential bills i couldnt afford, but it wasnt. It was buying !!!! i didnt really need and definitely couldnt afford. I was a CC companys wet dream! No more.

eskbanker

st999 wrote: »

If there wasn't why would anyone use a credit card?


I wouldn't.

Some would use them for the section 75 protection - although chargeback is also available as an alternative for debit cards, it's not as powerful as the legally-binding CCA s75 rights and obligations....