By Diana Milne
There's a dazzling array of credit cards on offer in the UAE. Here's everything you need to know to pick the right one.
There's no financial product that offers as much instant gratification as a credit card.
Once you have one you can get your hands on thousands of Dirhams in cash, book dream holidays online, or even buy a car.
And you don't even need any money in the bank.
There are literally hundreds of credit cards to choose from in the UAE and banks offer everything from mobile phones to free flights as enticements to new customers to sign up.
It is very easy for customers to get blinded by these dazzling offers - particularly as it is so easy to get hold of a credit card in the UAE - regardless of how many you already have.
But while banks may promise the world, the reality is that a credit card can become your worst enemy, not just your best friend.
Extortionate charges, interest rates and the dangers of getting into debt are all realities credit card users face - unless they pick the right card and know how to use it wisely.
In this definitive guide, we give you the low down on how to pick the right credit card, the terms and conditions to look out for and what you need to know before using your card.
To put the guide together we enlisted the help of a team of credit card experts: Financial advisors Ben Lester of GlobalEye Group and Craig Holding of Acuma Wealth Management; Kashif Sohail, retail banking group, cards marketing and business intelligence at Mashreq, Anil Chander, head of cards at RAKBANK and Murray Sims, head of personal banking at RAKBANK; Premal Patel, American Express marketing director for MENA; Zeeshan Saleem, Barclays' head of cards business in the UAE.
Late payment penalties
The UAE market average for late payment fees is around AED120 - and fees range from as low as AED90 to as high as AED195.
According to Sohail, banks with a higher number of interest free days for customers, tend to impose higher late payment penalties.
"We have noticed that banks that offer more interest free days tend to have a high late payment charge.This allows the banks some financial control. Banks often charge higher late payment penalty fees because of their intention to induce financial discipline in their customers." he claims.
Late payment penalties are an important form of revenue for banks - who rely on the fact that revolving customers will regularly miss the deadline for making minimum payments on their credit card balances so will be charged.
"As harsh as a late payment penalty may be for a customer, they are a big source of revenue for banks," said Sohail.
Customers should consider what kind of credit card user they are and whether they are likely to regularly miss payments when considering these charges.
"People don't pay much attention to late payment penalties when looking at credit cards," says Sohail.
"But inevitably customers will end up paying them - whether intentionally or unintentionally - particularly if they travel frequently so tend to miss payments," he goes on to say.
Some credit card issuers claim they are prepared to negotiate with customers regarding late payment penalties particularly if there is a genuine reason for a missed or late payment.
So customers are advised to try to find out a bank's attitude to late payments when applying for a new credit card.
Sims of RAKBANK which charges a AED125 late payment penalty, says: "Very often we reverse late payment fees if customers come to us and say they were in a situation where they genuinely couldn't pay on time.
"We are prepared to listen to customers' individual. Circumstances if they come to us and to work out a repayment schedule with them."
One of the biggest factors that influence a customer's decision over whether to select a credit card is the annual fee attached to it.
Annual fees in the UAE range from AED150 as charged by Abu Dhabi Commercial Bank, Arab Bank, Mashreq and MeBank on their Classic cards - to AED750 as charged by First Gulf Bank for their Platinum card.
There are however some banks that charge no annual fee at all - notably RAKBANK which has a range of three credit cards that are all free for life.
Fee free offers are very tempting to customers as they mean not having to hand over any cash upfront.
"Annual fees are one of the biggest considerations that people have when taking a new credit card," says Mashreq's Sohail. "When making the decision over whether to take a new credit card, customers' immediate concern is what fees they have to pay upfront."
However customers are advised not to get blinded by cards with no or very low fees - and to check that the bank is not compensating for this with high interest rates or late payment penalties.
Lloyds Bank for instance offers fee free credit cards - but charges interest rates of a relatively high 2.5% per transaction on cash withdrawals.
"If a bank is offering a card with no fee but a really high rate of interest, then you would be better off paying the upfront annual fee than a lower rate of interest each month when you use the card," says Lester.
Patel of AMEX, adds: "Lots of banks will charge no fee but they will load up interest and late payment penalties."
Chander of RAKBANK warns that many banks, such as HSBC Middle East will offer a card that is only free for the first year: "What a lot of banks in this market seem to be doing is offering a free card initially then charging an annual fee without warning after one year."
The extent to which customers are influenced by annual fees depends on what kind of credit card user they are. Those who only plan to use the card as back up in emergency situations would naturally rather not pay any fee. "These customers just want a card with no annual fee, no frills or extra benefits," says Sohail.
Interest rates on credit cards in the UAE are in the range of 1.5% to 3% per month and the amount of interest free credit offered is generally between 45 to 56 days.
Although there are fairly big discrepancies between the rates being offered by the different banks - experts say interest is not a factor many consumers take into consideration when picking a credit card.
One of the reasons for this, according to Sohail, is that the majority of consumers believe, when they take a credit card that they will be a transactor - somebody who pays their balance in full every month and is not charged interest. Therefore they will not be affected by high interest rates.
However, as Mashreq's own figures show - around 90% of the consumers that apply for a credit card subsequently go on to become revolvers - customers that do not pay off their credit cards in full at the end of every month.
"The UAE market average is that of every 100 credit cards you send out as a company only 80 of them are ever activated," says Sohail. "And of those 80 users 70 will revolve."
He goes on to point out that while on paper a 2% difference between interest rates can seem insignificant - the reality is that it can make a big impact.
"Let's say 2% is your monthly interest rate and you had a AED10,000 monthly balance. In a year you would have paid AED2,400 interest. Whereas if your interest rate is 2.4% you would have paid AED3000 in a year - that's a big difference."
An equally important factor is whether the bank offers an interest free period. Some banks allow generous amounts of interest free credit - MeBank for instance offers credit cards with 90 days of interest free credit. Whereas others offer none at all.
When considering interest rates customers should also think about what they are going to use the card for. Ben Lester of GlobalEye Group advises customers that because of the relatively high monthly interest on credit cards, loans can be a better way of paying for expensive items long term. "Interest rates tend to be lower on loans and there's a structured repayment schedule making them easier to pay off," he says.
Although it is relatively easy to apply for a credit card in the UAE - particularly as there are few credit checking procedures in place - there are conditions that customers must fulfill in order to be eligible for a credit card. And these conditions are tougher the more expensive or prestigious the card is.
The minimum salary requirement for a credit card in the UAE is around AED3000.
This rises according to the types of cards, with Platinum and Gold cards requiring the highest salary.
For RAKBANK's three credit cards, the minimum salary for the RAKBANK Visa card is AED3000. For the Gold card it is AED7,500 and for the Titanium it is AED10,000 a month.
For American Express credit cards, a salary of AED8000 a month is required for Blue cards whereas for Gold card customers must be earning in excess of AED12,000 a month. Platinum cards require a salary of AED23,000 a month.
Most banks - including Mashreq, HSBC Middle East and RAKBANK, however do not require customers to have an existing relationship with the bank in order for them to successfully apply to the bank for a credit card.
When customers apply for a credit card, the bank establishes their ability to repay the card - based on their salary and any existing financial commitments or debts they have and requires salary certificates and bank statements going back up to six months.
"Typically we require a salary certificate, bank statements for up to three months and quite a few banks also ask for a credit card statement to see if the customer already holds other cards," says Chander.
"We look at a customer's bank statements to see what other possible debts exist so we get a fair idea of the customer's possible disposable income and what he is already paying to service other debts."
Barclays' Saleem adds: "When we look at a customer's credit card application we mainly establish their ability to repay through their income and any other debts."
The credit limits offered by the banks differ but the range is from around AED10,000 to AED 100,000 as offered on MeBank's Options Installment card.
The service a bank provides can make or break a customer's credit card experience - regardless of how cheap or expensive that product is.
There is no point in having a card with no fees, low interest and a high credit limit if the bank that issues it provides unhelpful, inflexible customer service, does not provide flexible payment options, and is impossible to contact.
Although it is difficult for customers to be able to predict how good a bank's service will be there are, say experts, certain standards and warning signs customers should look out for in the first stages of enquiring about applying for a credit card.
The first, says Sims, is that the customer service agent has a good knowledge of the product and is willing and able to answer any questions the customer has. He goes on to say that one of the most important questions customers should ask the bank's salesperson is how flexible the payment options are that the bank offers: "How easily a customer can actually pay off their card is a very important factor. We have worked on making it as easy as possible for customers to pay and measures we have introduced include ties up with exchange houses across the UAE."
Sims adds that if a customer has to rely solely on the postal service to pay off their monthly balance then they might find themselves missing the due date and being hit with a late payment penalty.
With convenience in mind customers should also enquire about whether the bank provides a 24 hour phone or online banking service - and whether it is possible to make payments through these avenues.
The service requirements customers have will of course differ according to their individual needs. Those who travel frequently for instance would want 24-hour access to their bank.
But as Sohail points out across all income segments and customer groups - all customers should expect their bank to satisfy certain basic requirements.
"Customers from the different income segments have different requirements, but whatever they are everyone needs flexible payment channels and openness communication from their bank as well as easy access when they need it," he says.
There are rich pickings to be had from banks in the UAE who are offering increasingly attractive rewards to attract credit card customers.
Some offer a gift - which is often equivalent to or more valuable than the annual fee - on the customer acquiring the credit card.
Mashreq for instance offers a Mont Blanc pen to customers of its Platinum card.
Others offer shopping and dining discounts. RAKBANK for instance offers discounts of up to 20% on meals at restaurants and cafes in Dubai and at fashion, electronics and jewellery stores as well as spas for holders of its Titanium credit cards.
ABN Amro, under its Smart Diner programme, offers discounts of up to 20% at over 150 restaurants in the UAE.
A number of banks in the region offer air miles, which are accumulated every time a customer uses their card.
HSBC Middle East offers one air mile for every AED2 a customer spends on their Visa Gold cards.
Under MeBank's meMiles airmiles programme, Gold card customers receive three meMiles for every AED10 they spend which can be redeemed under the Emirates and Sri Lankan Airways Skywards programme, Qatar Airways' Privilege Club, and on flights with Air Indian, Indian Airlines and British Airways.
Others offer customers the option of having cash back rather than a specific reward.
RAKBANK offers 2% cash back to Titanium cardholders while American Express offers 1% cash back on its Gold and Blue credit cards.
There are several co-branded credit credits available, which allow you to get discounts at a store you shop at regularly or with a service you use.
ABN Amro for instance has launched a co-branded credit card in partnership with Jumbo Electronics, which allows customers to get their first year's annual fee back in Jumbo points every time they spend AED1,500 at the store.
RAKBANK has a co-branded MasterCard with NMC (New Medical Centre) which offers discounts at NMC hospitals, pharmacies, beauty salons and opticians across the UAE.
When choosing from the array of rewards schemes on offer from banks in the UAE, customers should think about what sorts of rewards they actually need.
Frequent travellers for instance would be more likely to go for cards that offer the chance to redeem air miles and that offer other travel benefits such as insurance.
While there are great rewards to be had, customers must take care not to ignore the basics when choosing a credit card. A bank may offer great dining discounts or an expensive mobile phone gift - but are the rewards really worth it if the card has high interest rates and a hefty annual fee?
"The credit card market is very competitive here and banks will try all sorts of tricks to attract customers," says Lester.
"But in the end no matter how good these rewards are the most important things to look out for are the interest rates and fees and customers should never ignore the small print in the rush to get their hands on a free flight or a nice gift."
All five of RAKBANK's credit cards - Titanium MasterCard, MasterCard, Visa Classic, Gold and NMC MasterCard - are free for life.
The bank does not compensate for this with high interest fees. The Visa Classic and Gold cards have a monthly 1.95% interest rate while the MasterCard, Titanium MasterCard and NMC MasterCard have a 1.70% interest rate.
The cards also boast a host of benefits, including 2% cash back on retail purchases using the Titanium card, free travel inconvenience insurance and discounts at shops, spas and restaurants.
The RAKBANK credit cards offer 55 days of interest free credit and require minimum monthly payments of just 3% of a customer's balance.
Card holders can take advantage of 5% discounts at MMI travel on tickets, hotel accomodation and holiday packages.
RAKBANK MasterCard holders also have the chance to win AED1,000,000 every three months and every AED500 customers spend they get another chance to enter the draw.
CBD charges just 1.5% interest on payments using its MasterCard, Visa Gold and Classic cards.
The cards also include a range of benefits such as 24 hour customer assistance, travel insurance, and supplementary cards for holders' family members.
Under the CBD Tijari Points Rewards scheme, customers earn one Tijari point for each dirham they spend and the points can then be redeemed on purchases at the network of retail outlets CBD has partners with.
These include Paris Gallery, Rotana Hotels and Suites, Axiom Telecom and Tanagra.
MasterCard holders can get access to 300 VIP airport lounges with their CBD Priority Pass and can also take advantage of CBD's travel inconvenience insurance everytime they travel.
The travel insurance the card offers covers personal accident, accidental medical expenses, travel delays, personal money and personal liability.
Customers have access to the bank's 24 hour contact centre.
The company does however charge annual fees of AED400 for MasterCard and Gold cards and AED200 for Visa Classic cards.
American Express provides the ultimate in personalised service for its Platinum card holders.
Each customer gets its own personal account manager who is on hand around the clock to do everything from make hotel reservations to book theatre tickets anywhere in the world.
The account managers are at the end of the phone 8am to 6pm from Saturday to Thursdays but outside these hours the account managers' support teams are on hand 24 hours a day.
They are able to provide customers with exclusive access to international events such as film premiers or Grand Prix racing events with one phone call.
The Platinum card is aimed at customers with busy lifestyles and offers financial services designed to make frequent travellers' lives easier.
These include the Express Cash service which allows customers to withdraw up to US$5000 a month from over 550,000 ATMs around the world. It also offers an emergency cheque cashing service whereby travellers can cash in a personal cheque every 21 days worth US$10,000 in local currency.
HSBC Middle East
HSBC Middle East's Air Miles programme is one of the most comprehensive rewards schemes on offer in the UAE.
Gold card holders are rewarded one air mile for every AED2 that they spend in the UAE or abroad and the points can be redeemed not just for flights but also for cruises, hotel accommodation, meals in restaurants, perfume, movie tickets, magazine subscriptions, theme park tickets and retail purchases.
Each month the Air Miles Middle East website features a host of travel and other offers.
This month alone card holders can have a break in Bangkok for 169,000 air miles, can buy a BenQ digital camera for 58,000 air miles or can get a book for ten cinema tickets for 36,000 air miles, among hundreds of other offers.
The HSBC Gold card offers a host of other benefits for customers, including the chance to make purchases for AED1000 or above anywhere in the world and to pay for them in convenient monthly payments at an interest rate of just 0.99% per month.
It also offers travel benefits under the HBSC Traveller scheme which include airport lounge access and Duty Free vouchers worth AED50 per trip.
Barclays Bank launched its range of three credit cards in the UAE in June with an emphasis on maximum choice for the customer.
It offers Classic, Gold and Platinum cards in addition to three different bundles suited to different customer needs.
The Preferred bundle is available on the Classic and Gold cards and has no annual fee and benefits such as free road assistance and insurance benefits. It has an interest rate of 2.49% and offers one reward point for every AED1 spent on the card.
Customers selecting the Priority bundle, which is available on the Classic, Gold and Platinum cards, pay an annual fee of AED300 and in return get a bigger range of benefits including the Barclays Butler service, free movie tickets and 50% discounts at spas and salons.
The interest rate for cards in this bundle is 2.39% per month.
For the lowest interest rate of 2.19% customers must select the Prestige package, which is available only on Platinum cards. For this customers pay an AED550 annual fee and get benefits including a free air ticket for every AED75,000 spent on the card.
First Gulf Bank
First Gulf Bank offers a Sharia compliant credit card with a difference - its Makkah credit card allows customers to accumulate points towards a trip to the holy city of Mecca in Saudi Arabia.
Each time customers spend AED1 on the card, they receive one step towards a free trip to Mecca. Bonus steps are added on for customers that pay their monthly administration charges on time.
The card also provides all customers with sharia compliant insurance on the Takaful Income Plan.
This protects their income and ensures that card payments are made should the customer suffer permanent disability. All Makkah credit card customers are automatically enrolled in the plan and pay no extra charge for it.
There is no annual fee on the card Customers pay minimum AED85 a month in service charges per month for use of the card but no interest as this is a Sharia compliant card.
The charge varies depending on the customer's salary and if they take a Classic, Gold or Platinum card.
The ease with which it is possible to get hold of a credit card in the UAE makes overspending and getting into debt a dangerous temptation.
And with most UAE banks requiring credit card customers to sign a security cheque to the full amount of their card limit - credit card debt can be a very serious matter. Missed payments result in banks cashing the security cheque, which then bounces - a criminal offence in the UAE, which can result in a jail sentence. Financial experts advise that the best way to avoid becoming overburdened with credit card debt is to try to pay your card balance off in full every month, And if it's not possible to pay off the full balance Holding of Acuma Wealth Management advises customers to pay off at least 20% of the balance each month: "Don't just make the minimum payments of 5% or 10% of your balance," he says. "If you are paying off at least 20% on a monthly basis then at least you are going some way to clearing the debt."
Experts advise that one of the worst things a credit card customer in debt can do is to take new cards to pay off existing debt. "Don't ever take another credit card to pay off the balance of your existing one because that trail can evolve into 14 or 15 cards until the situation is out of control," says Holding. He advises customers to contact their bank to discuss their debt situation if they feel it is spiraling out of control.
Many banks say they are prepared to negotiate with customers who have missed credit card payments before taking the last resort of cashing their security cheque.
Sohail says: "It all depends on individual circumstances - we won't just cash the security cheque straight away and call the cops we will speak to the customer first."
Sims adds: "We first contact the customer and find out why they haven't made the payment. We try to understand the problem and go into a dialogue with the customer."
Customers can protect themselves in the event that they are unable to make payments by taking out insurance on their credit card. Several banks including HSBC and RAKBANK offer Credit Shield insurance for which there is a monthly fee.
Guarding against fraud
Every year millions of dollars are stolen from banks and their customers through credit card fraud.
There are a multitude of ways in which criminals can get their hands on your cash - from simply stealing your card to capturing the account data stored on your magnetic strip using skimming devices.
The latter is the most effective form of attack as there is no way for customers to know that they have been "skimmed".
Once a criminal has the account data from your magnetic strip they can make a fake copy of the card then use it to pay for whatever they want. Skimming devices can be attached to ATM machines and the cardholder's PIN can be captured using hidden micro-cameras.
Alternatively a skimming machine can be hidden in the back of a shop or restaurant where a customer is making a payment.
Banks across the world are working on ways to combat fraud. Some are attaching plastic devices to ATMs which prevent skimming devices being attached to them.
But the most important development that is taking place is the introduction of ‘chip and pin' cards. These are credit cards embedded with a micro chip that is virtually impossible to forge.
These are widely available in Europe and are gradually being introduced in the Middle East. Customers make payments on the cards by entering them into a card reader then typing in their pin number. Describing the benefits of the cards, Sims says: "It is nearly impossible to counterfeit these cards. Today significant amounts of fraud is through skimming but that level of fraud goes away with chip and pin."
He said RAKBANK is expected to introduce chip cards in the first quarter of next year with other banks expected to follow.
In the meantime Visa has published guidelines on how to protect your credit card including: Report lost or stolen cards immediately; always check your billing statements; never write down or disclose your PIN number; don't lose sight of your card during a transaction; and know who has access to your card.
Understanding your interest rate
Interest is effectively the fee that the bank charges customers for using its money as a loan to buy purchases.
Some card providers may begin charging immediately without any "grace period". Some start charging interest from the date of transaction or the date when the transaction is processed in the system. Others may start charging interest from the date on your statement.
Unlike a house mortgage or a car loan, credit card interest can be charged by the day or by the month.
If you do not pay the balance in full, interest on the unpaid amount, or revolving balance, will be added to the total amount owed. When this happens, you are paying interest on interest, also called compound interest. Any new purchases you make can be included in the total balance immediately and will begin to accrue interest from the date of purchase. If you have a large balance, paying only the minimum amount each month can be an expensive way to use your credit card.
Credit card interest rates are set yearly, but calculated monthly. Some credit card interest may be calculated daily and charged monthly. For example, let's say your card has an APR of 18%. If your total purchase is about $100 with tax, it would cost you approximately an additional $18 in interest if you choose to stretch your payments over a full year, and you do not charge additional purchases on top of your balance. And if your card "compounds" the interest (a practice of charging interest on the monthly interest accrued), the total interest will be several dollars more than the annual rate.
To calculate your monthly interest charge, the bank takes the 18% APR and divides it by 12 months for the year. That comes to 1.5% of the average daily balance for the month.
The average daily balance is a method of levelling out the amount you owe, which may fluctuate from day to day because of payment and purchases. In effect, the bank adds together the balance on your credit card for each day of the month, and divides this by the number of days in the month. More complete explanation of how the average daily balance is calculated.
Let's say you decide to pay the $100 charge for your dress in two monthly payments of $50. You receive your credit card statement and see the charge listed. Approximately three weeks after you receive your statement, you mail in your payment of $50. It arrives at your bank 25 days into your credit card cycle. You make no additional charges and next month's credit card statement arrives.
You see your previous balance of $50, an interest charge of $1.38, a balance subject to finance charge of $92, and an ending balance of $51.38. Meaning the total cost of purchasing the dress, assuming you pay the ending balance in full, is $101.38.
But how did the bank arrive at $1.38 in interest?
If you had paid the $100 charge in full by the due date on the statement, you would have paid no interest, leveraging the bank's "grace period" - generally 14 to 25 days from the date of purchase. But because you paid only $50, interest is accrued from the date of purchase using the average daily balance method.
So in calculating the average of your account's daily balance, the bank looks at the number of days carrying any given balance. Since your first $50 payment was received 25 days into the credit card cycle, you carried a balance of $100 for 25 days ($100 x 25 days divided by 30 days in the month = $83.33, the average daily balance for 25 days).
If you add both average daily balances from above, you get your balance that is subject to a finance charge of $92. Therefore, the 1.5% (the monthly interest rate) of $92 is $1.38, your interest charge.
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