Credit Cards in South Africa
The modern-day banking offers a variety of financial solutions, some of which will see you making financial expenditures without loading your bank account with funds.
As individuals, we reach some points in life where we need to have financial freedom. Always wanting to go on a holiday or making festive expenditures without having to worry, about whether our funds will be sufficient or not. Sometimes, it is what you can fork out financially that determines how happy you are.
There is not much to worry about when you can buy food, allocate for medical expenses, your housing, education, and luxuries without going through a financial strain.
The banking sector in South Africa represents one of the richest and successful financial systems. They provide a wide variety of credit systems some of the solutions that work both locally and internationally.
There is a right level of competition amongst the credit card providers in South Africa. Most offer services that can be ranked amongst the best international providers like Mastercard and Visa. Credit cards in South Africa represent an alternative borrowing system to the clients who have an excellent credit rating. From observing the costs and the financial limits provided by the banking sector, one can see how the financial system has developed over the past decades.
What are credit cards ?
Credit cards are smart-cards that represent a cyclical credit facility provided to a client of a banking or financial credit institution.
The cyclical credit facility represents a separate account to the bank account of the holder; it represents a limited financial credit that allows a client to make purchases.
Credit cards can be seen as an alternative to personal loan services as the holders of credit cards are allowed to spend a specified amount of money.
Similar to shopping, pay-day loans, and instant loans, the credit card facilities usually are repayable with a one-time payment. It is deducted from the central bank account, although this will depend on the amount used. There might be a disparity in how the credit card functions in South Africa. Many other institutions provide these services; some are not banks or financial institutions but provide credit card facilities.
These are financial institutions that have a working relationship with banking institutions where payments are deducted from. The credit card system also imitates personal loans in the sense that, the amounts that applicants can access are limited based on credit assessments. Despite the offering of a significant grace period to clients, the credit card system also makes use of interest rates, initiation fees, and flat monthly service fees as its charges to the clients.
With a credit card, clients can make expenditures of their own choices to the limit of amounts provided by the credit card provider. These would be the amounts that the provider would have entrusted the customer with.
The amounts provided by credit card providers can be spent at no interest costs, that is if the client manages to repay the card within the grace period. In South Africa, the grace period of credit cards is usually 55 days. If the client manages to refund the credit or money he/she would have spent, the facility will charge no interest.
However, there is a tricky element about the credit card repayment. If you do not repay the whole amount within the grace period, the interest charges will be based on the entire amount you initially spent.
For example, If a client goes on a holiday and uses a credit card to purchase items for R11 000, on a card that charges 3% per month as an interest rate. If the client repays R10 500 before the 55-day grace period, on the 56th day, the balance of R500 is still on the account. Interest rates will be charged on the whole R11 000 that the client initially borrowed, not on the remaining balance of R500. That means the client will be liable for paying interest of 3% of R11 000.
Who provides credit cards?
Our nation is blessed to have a competitive financial system. With this, there is a large variety of companies that are actively involved in the provision of credit cards.
There is a range of shopping, financial institutions, and banking corporations that have crafted priceless credit card solutions. These providers of credit cards are authorized and registered by the same authority which oversees the provision of personal loans. The National Credit Regulator (NCR) registers and license credit card providers in the country, and it put caps on interest rates and the responsible lending procedures.
Woolworth is one of the major credit card providers amongst the retail shops in South Africa. The company provides credit cards that allow customers to purchase on its shops and those of others. Virgin Money, American Express, and British Airways are some of the non-banking corporations that have a vivid presence in the provision of credit cards. However, as we all know, the banking sector dominates all other players in the area of credit cards. In addition to that, South African banks provide cheap services, their clients also enjoy large credit amounts, realizing the best of credit facilities in the country.
Almost all banking corporations that issue personal accounts have credit card facilities availed to clients who have qualifying accounts.
Why do we need credit cards?
Nothing is disturbing as running into a financial shortage in the middle of shopping or a holiday expedition. Knowing that your next pay-day is far, you can not quickly source funding from anyway for the amounts that you need.
The catchy thing about life is that we might be knowing when exactly is the time to get money, but the need to make expenditures does have no respect for that. In most cases, real financial needs come to us when our bank accounts are dry.
Credit cards provide answers to two of the common financial problems that human beings experience frequently, and these are commercial convenience and business expenses. Credit cards are by far the cheapest form of credit facilities or loans for people who are looking to do short term expenditures. These can be observed from the small charges charged by the providers. Initial fees and monthly service fees are somehow insignificant costs to the amount of credit facility that one would benefit from.
The presence of a grace period allows clients to experience no interest charges at all in events when they can make payments within the stipulated grace period.
Imagine getting a financial credit that allows you to withdraw and use funds for free for a period of up to 55 days. The 55 day grace period is more than enough for most people who would be looking to finance a shortfall on their budgets.
The issue of convenience comes when the client can use money provided by a credit card provider without having to go through an application and client assessment at the time when the money is needed. Credit cards have cyclical credit provisions to clients, allowing clients to take financial expenditures without consulting any individual.
The reason behind this is that the credit card providers embrace the need to have emergencies financed as a way of giving a smooth flow to the lives of citizens. With these, credit cards can be seen as one of the most convenient forms of financial credit.
What is the cost of credit cards
There are three initial costs related to the issuing, maintaining, and use of credit cards in South Africa. Similar to short-term loan and personal loans, credit cards also come with interest charges that are regulated by the NCR.
Credit cards come with initiation costs (joining/application fees) and service (administration fees). These are somehow small and considered insignificant, and they form part of the costs to the credit cards.
Initiation fees are charged when the applicant joins the credit card service, and these costs are only charged once and payable in cash by the applicant. The service fees are flat monthly fees that revolve, and they are deducted from the repayments that the client makes in repaying the credit facility.
The service fees are the same, despite the size of credit that one uses, whether the applicant uses the card or not, the service fees are charged to the client account.
The interest rates are charged on a simple interest basis by credit card providers. Interest rates represent the time value of money; that is why all clients who make timely payments on their credit cards do not come across these.
Interest rates are generally charged to the clients who fail to facilitate repayment within the provided a grace period, which is usually 55 days. The interest rates on credit cards in South Africa typically are 3% per cycle, and the prices are way below the regulatory interest rates of 5% per month.
What is the difference between a credit card and a debit card?
Credit cards come with a limited cyclical provision of credit facilities to the client of a banking, shopping, or financial institution.
They allow clients to spend money on the point of sales and swiping machines that accept credit cards. The system has a provider of financial credit who indirectly lends funds to the client, and the funds will be made readily available to the client whenever they want to spend it. The client will be required to make repayments within an agreed time-frame. On the other hand, debit cards are prepaid shopping cards that clients are provided with by banking or financial institutions.
The variance lies in that the debit cards do not provide the holder with any credit; in fact, the holders load the debit cards with their funds.
What is needed to obtain a credit card?
Unlike personal loans, quick loans, and property finance, credit cards are somehow easy to obtain as compared to other credit facilities.
Generally, all credit facilities in South Africa require applicants to have a regular income that is received through the normal banking channel (through current accounts). The credit card applicants should be South African residents who are adults falling within the age group of 18 to 65 years. If the credit card facility is to be obtained from a banking institution, the applicant should have a current account with the same bank. In addition to that, the following documents will be useful in the application process
- National identity document
- Three months stamped bank statement
- Proof of residential address
- Latest pay slip from the current employer
When one has the requirements as mentioned above, they can move to make an application for the credit card. The application is made online or on a paper-based application form.
The online application will be accessible when the applicant already has access to an online banking platform with their bank. The application will need one to fill in their personal and financial information before submitting the required documents.
Further procedures will be done at the nearest branch where the applicant will be provided with the credit card.
How does repayment of credit cards work?
Most credit card providers arrange a direct debit form of repayment from the current account of the card-holder.
There are two types of payments that need to be done every month, and these are service fees and credit repayments. The credit repayments are repaid depending on whether the client has used the card or not. Service fees are paid despite the use of the credit card or not.
Depending on the amount which the client would have used, the repayment can take the form of monthly installments or a one-time payment. The payments are deducted directly from the bank account of the holder. This allows for an easy repayment at the same time preventing clients from forgetting and defaulting payments which might have severe consequences for their credit ratings
Lenders offering Credit Cards in South Africa
Informative books on Credit Cards in South Africa
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