An Easy to Understand Guide on Credit Cards

An Easy to Understand Guide on Credit Cards
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Spending on plastic cards has been rising every year. Credit cards are a huge business in the UAE, with a lot of them in circulation. If used properly, a credit card is a flexible and secure way of making payments. It could be a good option for spreading the costs on major purchases. The debt on credit cards are quite expensive and should not be considered as a long-term option. However, this doesn’t imply that a credit card intrinsically bad.

Spending only that you can afford, making timely payments on your bill, and reading the terms & conditions thoroughly are all essential for your financial health. Making responsible use of your credit cards can assist you in building good credit. This credit history or credit score helps you in while applying for a bigger loan such as a mortgage in the future.

How Does a Credit Card Work?

You may consider credit cards to be short-term loans offered by credit card issuers. The credit cards use the money of the issuer and then charge you later. You can use the card up to the pre-determined credit limit which is usually decided by the credit card issuer. It is decided dependent upon how confident your card issuer is that you will be able to pay the amount back.

If you will be successful in paying off your bill in full every month, you will not have to pay any interest on the amount you have borrowed. However, in case of cash withdrawals, interest is generally charged on a regular basis starting from the day you withdraw the cash.

This is amongst the reasons why making cash withdrawals using credit cards should be avoided. In the case of some banks, you might be hit with charges (around 4 percent). The rate of interest on cash withdrawals is usually more than that on purchases. If you fail to pay the outstanding balance (if any) in full, then you will have to bear interest. Usually, it is backdated, hence if you made a purchase at the beginning of the month, you will have to bear the interest for the whole month.

Various Charges Related to Credit Cards in the UAE

The credit card in the UAE involves multiple charges on them. A lot of you fail to understand or avoid taking complete knowledge related to the charges associated with your card. The charges, as well as the rates, may accumulate with time stacking up into a heap of debt which becomes inescapable. Hence, for avoiding such debt, it is mandatory to have a proper understanding of these charges levied on your card.

Interest Rates

A lot of UAE residents are not aware of the rate of interest they are paying on their card bills. This is quite alarming considering the fact that interest rates charged on credit cards in the UAE are higher as compared to other countries. This interest rate is generally communicated or advertised on a monthly basis, and when compounded over the year goes staggeringly high.

Annual Fee

This is the charge you will have to pay for the card annually. The annual fees charged on the card is based upon the kind of card you own. The cards with high benefits have higher charges. We usually forget about this fee as it is charged annually. However, it may have a strong impact on your credit card statement. Some banks offer cards with an advertisement stating no annual fee. It may be available for a short period or just the first year. For avoiding this, there are a few cards that are free for life, that is, the annual fee is waived off throughout the lifetime.

Cash Fees

A lot of us tend to forget that a credit card is not exactly meant for cash withdrawals. Since it seems to be convenient, we end up making cash withdrawals using it. Withdrawing cash using credit cards can cause serious damage to your account. The charges related to cash withdrawal are cash advance fee, charged on the withdrawn amount, and cash advance interest, charged from the withdrawal date.

International Transaction Fees

Each credit card involves an international transaction charge which is charged whenever you swipe your credit card on international grounds. Although sometimes this amount seems insignificantly little, it comes with the potential to significantly impact your bill.

Over-limit Fee

All credit cards come with a credit limit. Exceeding this limit attracts over-limit fees along with impacting your credit rating or score. This may have consequences when you need debt in the future, as credit card issuers take credit ratings into consideration before lending funds. However, in case you feel the credit limit is insufficient, you can request the bank to raise it for you.

Over to You!

Before choosing the best credit card in UAE, you need to understand exactly how a credit card works. You also need to analyze if you would be able to use it responsibly or not. If not used properly, you may find yourself stuck in a spiraling cycle of debts. However, if you can embrace the sensible use of these plastic cards, they can prove to be a powerful financial tool.

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