Wednesday, July 23, 2008

SCB credit card funds transfer

Standard Chartered Bank called to inform me of their credit card funds transfer promotion. In my previous article, I have illustrated the rate of a DBS credit card funds transfer promotion that was offered to me. Now let us see how good is the rate of SCB one.

Again as usual, different banks may have different one time processing fee and structure of payment. It is important to note that you can’t judge how cheap the rate from the processing fee alone. To be accurate, you need to list down the cash inflow and outflow; and then compute the rate using Excel XIRR. Then you can compare how cheap from the computed rate.

Below are examples of how the loans work and illustrations of how the effective annual rates are computed in Excel. SCB offers a 12-month and 24-month repayment periods for balance transfer.

Repayment period = 12 months
Administration fee of 3% = $150
Excel illustration of SCB credit card funds transfer (12-month)
Loan = $5000
Repayment period = 24 months
Administration fee of 5% = $250

Excel illustration of SCB credit card funds transfer (24-month)
As you can see both the effective rates are at 3.64% per annum. It is interesting to note that despite the higher processing fee for the longer repayment period; the rate turns out to be the same for both. Currently at 3.64% per annum, I think that rate is one of the cheapest among longer repayment period for balance transfers.

So if you guys want to secure a cheap loan, give SCB a call. Don’t fall for loans with high interest rate like those more than 10% per annum.


Anonymous said...

Have you checked that it is based on reducing balance?

Most of the Fund transfer is 3.88% charge up from and spread over 24 months.

Mike Dirnt said...

reducing balance is based on an interest rate charged per annum.

the above that i show, is based on a one time processing fee. but if you make just the minimum payment and compute the interest rate, it works out to 3.64% per annum.

so there is no difference of this rate and a loan based on reducing balance rate at 3.64% pa. both rates are the same and equally cheap

Important that you make only the MINIMUM payment. if you pay more, the rate from the new cashflow will work out to be higher.

Anonymous said...

effective rate of 3.64% of 5000 is $182...but in all one only has to pay $150 for the interest on top of the loan amount of 5000. so i dun understand this part. unless u mean the borrower is paying 5182 in total at the end of 12 months

Mike Dirnt said...

it will be $182 if you take loan in the beginning of the year and pay $5182 at the end of the year.

try to understand the concept time value of money. its in one of the first finance articles in my blog.

let me give you another example in investment returns.

you earn 12% pa if you invest $1000 at the beginning of the year and make $1120 at then end of the year.

you earn ~12% pa if you invest $1000 at the beginning of the year and make $60 at the end of half year.

see the example? even rate is the same, amount is different.

Anonymous said...

the promotion for SCB no more already le.... i called them up they said dun have the promo of 1.5% processing fee one le....

Mike Dirnt said...

i believe the 1.5% is for 6 months.

the one mentioned in this article is for 12 or 24 months repayment period

for 1.5% 6 months balance transfer, you can go to UOB said...

thank for your information.

credit card 0 transfer balance

PW Cheong said...

Dear Mike,
Thank you very much for the illustrated examples, and your suggestion to use Excel XIRR formula is another excellent tips.
Cheers and God bless.