fimmtudagur, janúar 20, 2005

nýtt kortatímabil!

This is Icelandic for "new-credit-card-billing-cycle", and that day is today. A funny thing about Iceland is the way "credit cards" work here:

1. You have to pay off the whole balance at the beginning of every month. (If you can't pay it in full, you have to make "special arrangements", which likely means having to be a schoolmate of the branch manager.)

2. Your entire outstanding credit card balance gets auto-deducted from your bank account on the 2nd of the month. This is because everyone in the country gets their monthly salary on the last day of the previous month, and the banks figure they had better grab the cash before the customer uses it for something else. (The idea of letting people pay the minimum balance and then fleecing them at punitive interest rates seems not to have caught on with the banks here.)

3. The credit card balance collected covers every charge made up through the 18th or 19th of the previous month.

So, today, the 20th of January, is the beginning of the credit card billing cycle that won't come due until March 2nd. The stores are all hip to this since it holds true for everyone in the whole country. So they have sales, and put up big signs in their windows, and run big full-pagers in the papers, reminding people that they can spend money again like it's 1999. For at least another week or so.

Gleðilegt kortatímabil!


Anonymous Nafnlaus said...

Doesn't that mean there is an opportunity for the capital markets to meet people's need for financing? There's nothing wrong with a little debt - especially for those youngsters who have larger incomes looming in their futures - shouldn't they have a credit driven opportunity to normalise their spending patterns over their lives instead of being forced into having all their money arrive once they are old and balding and get stuck buying an m-coupe to feed their egos - shouldn't they have a credit driven opportunity to own an m-coupe in their 20s?

Blogger JB said...

Turns out there are cards with revolving lines of credit, but the interest rates on those are punitive.

I believe there are many opportunities to make money in Iceland. The lack of competition in many industries (airlines and shipping, just to name two) means that markets are very inefficient and prices are high. Iceland is small enough that many international firms that could provide this type of competition have left it alone. Also, entrenched interests have good reason to maintain the status quo.

Anonymous Nafnlaus said...

I believe there's monopoly on air transfer's due to goverment regulations. No competition, means Icelandair won't go out of business

Anonymous Ian Macdonald said...

Excuse me for getting her a few years too late.

I just wanted to say that most European countries offer this variety of credit card, whereby one is typically not allowed to maintain a balance from month to month. The UK is a notable exception to this rule, however.

Similarly, in most European countries, credit cards aren't handed out to just anyone the way they are in the US. One needs quite a high salary to qualify for a Visa or Mastercard, even with a low credit limit.

Where I live in the Netherlands, lots of shops charge an extra 5% if you wish to pay with a credit card, and even then American Express is usually not accepted at all, because they take too large a chunk of the purchase price in commission.

Blogger JB said...

Ian, thanks for writing. After I wrote this, one of my colleagues cleared up all my confusion with one phrase. "Charge cards" are what we have in Iceland, and presumably what you are describing elsewhere in Europe. In the US "charge cards" were all the rage when I was a kid in the 70s and 80s, but were replaced by "credit cards" which are now almost ubiquitous there. The difference is the ability to maintain a balance across payment periods.

What people use for consumer debt financing in Iceland, as I have since learned, is their ýfirdráttur or the overdraft line on their current (checking) account.


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