The Hindu Business Line : Worry after a credit card party

THE gang was hanging out at one of Chennai's up-market coffee pubs. China (because he always compared India with China) was having his third mug of coffee. Muscles ( he always looked puny and ever hungry) was relishing his fourth plate of pizza. Wafers ( she loves wafers) was having her nth bite of French fries and was beginning to mumble whether it was such a nice thing for her to have joined the CA course. China was at IIT and would surely go abroad and Muscles was studying to become a heart surgeon.

Wafers contrasted their professions. If China messed up a civil construction hundreds of lives could be lost; he had to be careful in his work. If Muscles got an operation right, he would be treated as God. But what about Wafers? If she wronged up a transaction she could set it right with a rectification journal entry. How dull her profession was she wondered. No glamour, no chutzpah.

Her trail of thoughts was broken by a rattling noise. "Folks, it's my treat," screamed Rinku. Muscles couldn't believe his ears. Rinku? And throwing a party? You might well see the sun set in the East. China was sure Rinku was joking. "Which reporter would host a treat?" he wondered aloud. "They are a tribe who are used to free lunches", muttered Wafers. "Did you bag the Bookers?" asked Muscles.

Rinku wasn't going to allow them to spoil his mood. "No I got a credit card for free." Wafers' eyes brightened up. This was familiar terrain, finance. "But they don't accept credit cards in this pub", remarked China. "No problem, I will draw cash from the nearby ATM," perked the scribe. "Sure?" asked China. "Confident?" asked Muscles. "Lock him," screamed Wafers as they went in for another round of coffee, pizzas and French fries.

Rinku ordered for pastas. "I received a call", he said. The girl at the other end told me, "Sir, based on your track record of spending (Lie 1, when does Rinku spend thought Wafers) we have selected you for receiving a free card. With every Rs 100 that you spend you will get one reward point. And when you have accumulated 25,000 points (that would mean spending Rs 25,00,000 computed Wafers) you will automatically qualify for a free return trip to Hollywood. What's more you don't have to pay for your purchases. Just send in a cheque (did Rinku have a bank account wondered Wafers) for 5 per cent of the amount due and the balance can be carried forward at a small interest rate of 1.95 per cent per month. If you run short of cash you can draw from the ATM and we charge only Rs 50. Sir, tomorrow our man will help you fill up the form (Rinku's thumb print would be better thought Wafers)." Of course, the girl had spoken non-stop the way only call centre girls can. Rinku had supplied the punctuation marks!

"Have you got your card," asked Wafers, her mind furiously doing the calculations. "Of course. That's why this treat. Actually, after one year, I can renew my card for a small fee of Rs 750 per annum" puffed Rinku, like a child with a new toy.

Watching Wafers, Muscles knew she was about to chastise Rinku. Wafers was never wrong with her arithmetic. And you could read her face like a newspaper. There was no way that Muscles would allow her to spoil this lifetime opportunity of having a treat at Rinku's expense. "Not now", he snarled. And they ate. And ate, late into the night. Finally the ushers came to pull down the shutters. The bill arrived: Rs 960. Add a tenner as tip and Rinku could pay another Rs 30 to go home by auto. He would have spent the Rs 1,000 that he had drawn from the ATM. Great night.

As they walked down Wafers told Rinku, "it wasn't such a smart thing drawing money from the ATM." "Why?" asked China. "Because today is August 16, the card statement will reach on August 20 and Rinku has to pay on September 1. That means he has to pay Rs 1050 (transaction cost included) within 15 days. That's an interest cost of Rs 50 on Rs 1000 for 15 days or 5 per cent for 0.5 months. That's 120 per cent per annum. Period. Now which fool would pay 120 per cent interest?" she asked aloud. "Rinkuuuuuuuuu, of course" said Muscles. Rinku wasn't willing to let these folks give him a hangover. "Okay, I will use the revolving credit, pay only Rs 50 on September 1 and carry forward the balance Rs 1,000 for payment on October 1. That would mean I would have borrowed Rs 1,000 for one-and-a-half months. Or 5 per cent for 1.5 months. Or 40 per cent per annum. And if I pay after three months the interest rate would come down further" mumbled Rinku, doing his math at a hectic pace. China muttered, "but boy you will be paying 1.95 per cent per month as well. That's 24 per cent per annum." Wafers was beginning to feel happy. "Look all these guys are quick in their arithmetic", she told herself.

Rinku slowly realised that he had been dealt with a bad hand. "Oh, God, why did I buy my card" he muttered. "Because, the telephone girl wanted you to buy one free" chipped in China. "Because you had to buy us coffee," said Wafers, adding insult to injury. Rinku threw up. "I will call up the girl and surrender my card", he said. "Hey don't do that" chirped Wafers. "Spend wisely; and using a card would be great. If you buy during the first week, you would enjoy about one month's credit. Suppose you buy for Rs 10,000 a month. If you place that sum in a bank you earn Rs 750 (7.5 per cent for one year on Rs 10,000). So if you were buying for anything more than Rs 10,000 per month on your card, it would cover your membership fee. It would be a good card," beamed Wafers.

Rinku was confused. Should he continue with the card or shouldn't he? Muscles solved his dilemma reminding Rinku that he earned only Rs 7,000 a month. Phew.

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