Credit Cards in South Africa
A credit card is a payment card issued to users to enable the cardholder to pay a merchant for goods and services, based on the cardholder’s promise to the card issuer to pay them for the amounts so paid plus other agreed charges.
When you borrow money, you have to pay a price. The problem is that many times you need to use extra cash than you can find in your wallet. This is how borrowing has become part of the lifestyle of all modern people and South Africans are no exception to this rule. You can exploit all the benefits of borrowing money with careful planning and financial discipline.
Find out how to apply these principles to the use of credit cards, which are among the most widely used credit products.
The Main Borrowing Options
The credit products available at present can be divided into two groups based on the repayment term.
Consider the two main options that you can select from.
1. Short to mid-term borrowing
Most of the unsecured loans and lines of credit are in this category. Common examples include personal loans, car loans, bank account overdraft, credit cards and store cards. The in-store finance deals for the purchase of products are in this category as well.
2. Long term borrowing
The credit products with a long term include home loans, home equity loans and debt consolidation loans. Lenders are able to offer a longer repayment term because these loans are secured with an asset – the property of the borrower.
The variety of secured loans in South Africa has increased greatly to include products like equity release mortgages.
Some unsecured personal loans may also fall in this category, but these are generally rare.
Understanding Credit Cards
• You use your income to pay what you owe the lender. The cards work in a similar way to overdrafts. You can borrow money up to a set limit. You will have an interest-free period to repay your debt.
• You are required to make at least a set minimum payment before this period expires. After this, the lender will charge interest on the outstanding balance.
Credit cards are generally more convenient to use and more affordable than overdrafts. It’s best if you use your credit cards to borrow small or medium amounts of cash. You should avoid using more than a few thousand rand despite the maximum limit set on your cards. You can use the cards for making slightly bigger purchases such as a couch or a refrigerator.
You have to plan the repayment of the borrowed amount effectively with the use of a well prepared budget.