With more than 200 credit cards to choose from, UAE borrowers are spoilt for choice. Yet choice can also be confusing, especially given the different interest rates, introductory offers, rewards and cash back deals on the market. Find the right credit card for your spending, otherwise you risk high charges.
Check the APR
A credit card is great for short-term spending but it is an expensive way to borrow money over the longer run. Card issuers quote seemingly competitive rates of between 2.35 per cent and 3.25 per cent, but that is the monthly interest rate. When compounded up to the annual percentage rate (APR) these numbers soar to a whopping 32.15 per cent and 46.78 per cent respectively. Ambareen Musa, chief executive and founder of comparison site Souqalmal.com, warns of the dangers of reckless spending. “Credit cards offer great perks and rewards, but you only truly benefit if you pay your bills on time and avoid hefty interest repayments.”
Decide what benefits you want
If you are sure you will clear your credit card debt every single month, concentrate on the benefits it offers instead, says Jonathan Rawling, chief financial officer of comparison site compareit4me.com. “Credit card perks may include cash back, air miles, complimentary golf days, cinema tickets, free valet parking, prize draws, VIP airport lounge access and transfers.” Do not ignore the interest rate as you may end up paying it if you miss a monthly payment or run into financial problems.
Beware high credit limits
Think carefully when choosing the credit limit on your card, says Kunal Malani, head of customer value management, retail banking and wealth management at HSBC Bank Middle East. “A high credit limit may look attractive, but you should avoid a potential debt trap by choosing one that helps you stick to your budget.” Never treat your credit limit as a target. Beware, some banks extend credit limits without informing customers, which could lead to overspending.
Protect your credit status
Al Etihad Credit Bureau allows banks to check what personal loan and credit card debt applicants already have. Too much debt could hurt your credit score.
Check the annual fee
Some cards have no annual fees, others charge as much as Dh2,000 or more. Ms Musa says a higher fee may be worth paying if you get some juicy rewards in return.
Examine foreign exchange rates
Credit card issuers typically slap on extra charges for overseas use, ranging from 2.75 per cent to 3.50 per cent of any transaction, Ms Musa says. “If you’re a frequent traveller, pick one that charges lower foreign exchange fees, and higher rewards on international spend.”
Watch for introductory offers
Banks run periodic promotions on their prime credit cards. “Examples include bonus air miles when you sign up, bonus cashback, zero annual fee for the first year, complimentary gift vouchers and more,” Ms Musa says.
Do the sums on balance transfer cards
A number of UAE banks now allow you to transfer your existing card balance at 0 per cent interest for three to six months. “An interest-free period could be very useful for someone looking to transfer a considerable balance from their previous card,” says Ms Musa. However, you might have to pay an initial “processing fee” of around 2 per cent of your balance, followed by a monthly fee of up to 0.90 per cent for up to two years (equivalent to an APR of 11.35 per cent).
Consider Credit Shield
Credit Shield is designed to clear the balance on your card following death or serious illness, and can be bought for an extra monthly fee. The cost typically ranges from 0.5 per cent to 0.99 per cent of your outstanding balance, but some policies only offer limited cover. If you run a small card balance or have savings to clear your debt, you probably don’t need it. Beware though, some banks apply it automatically, so ask for it to be removed.
Terms and conditions
When evaluating rewards check: is there a minimum spend requirement? Is the cashback percentage attractive but the monthly redemption limit too low? Do the eligible spending categories include groceries and utilities? When do the air miles expire?