Credit Cards explained

The level of credit card penetration in Egypt remains low despite its worldwide presence. Public fears of becoming indebted, misinformation on the nature, benefits and characteristics of the credit cards as well as the limited availability of point of sales machines and low acceptability of Egyptian merchants of their cards as a cash substitute are the main hindrances behind the low penetration level. The Daily News Egypt defines what credit cards are, analyses their presence in Egypt and interviews several experts on the matter.

How is a credit card issued?

Credit Card issuance is easy, but it has certain requirements and limitations that should be clear to the customer.

• Age is restricted to 21 to 65 in certain banks if salary serves as the credit card’s collateral. If the collateral is a bank account, it has no limit starting from age 21.

• Some banks impose certain limits with regard to the income, with a salary minimum of EGP 1,500. Some also limit credit card issuance to certain professions, including: journalists, lawyers, police officers and judges.

These professions are allowed credit card usage, though it is called in this instance “secured credit card”. In some cases the collateral must be a bank account, not a salary.

• The credit card must be based on collateral. If the customer cannot pay the money at the required time the bank would still be able to get its money back through the collateral.

Collateral based on assets or bank account:

• Copy of the Personal ID
• Utility bill
• Letter from the bank stating that it has secured the value of the asset for the purpose of issuing a card. The letter should include the credit limit.

Credit Card based on personal Collateral (Income or Bank account):

• Copy of the personal ID
• Original Utility Bill
• Indication of previous credit banking activities if available
• Proof of income (an income certificate ratified by the dealing bank, syndicate membership card, copy of practise license or Tax ID)

 Types of Credit Card:

Most banks issue three main types of credit card depending on the customer’s income:

• Classic Credit card with a limit up to EGP 5,000
• Gold credit Card with a limit up to EGP 60,000
• Platinum credit card with a limit over EGP 60,000

 Credit Card Limit:

Cards allow users to spend a set amount depending on circumstances. Each purchase adds the amount the account.

Interest free period:

There is a set period of time during which no interest is charged, usually between 20 and 55 days. This is called the interest free period. After that, failure to pay the full balance on time may see interest added to the account.

Monthly payment:

The credit card provider will send a statement each month, listing the following:

• Details of each amount spent on the card since the last statement
• Details of interest and other charges added to the account
• The amount due (the balance)
• The payment deadline
• The amount of the minimum payment
• How and where to make payments
• How to contact the credit card provider.

Benefits:

• Some banks provide certain benefits with the credit card with regard to purchases and discounts at certain places that are updated frequently.

Credit card limitations: 

• The payment of a high interest rate imposed on the credit money withdrawn form a problem. Customers are allowed a free interest period, so it is advisable to choose a bank with the lowest interest rate.
• Some banks imposes higher interest if the money was withdrawn cash rather than purchase withdrawal.

Kinds of credit cards in Egypt

The difference between payment cards in Egypt is not limited to Visa and MasterCard; credit cards are classified by banks according to the service they can offer. However all types of credit cards provide interest free credit for up to around 56 days on purchases and the option to pay a minimum of 5% of the monthly outstanding balance, the distinction comes in the rewards and benefits.

Cards for VIP customers

• Can be called premium or platinum cards
• Issued to leading clients
• Provides the longest grace period for the payment of outstanding balances
• Free access to VIP airport lounges
• Around EGP 50,000 needed as starting limit to issue the card
• Possibility of issuing up to four supplementary cards
• Cardholder can ask for an emergency medical coverage worth EGP 3000 annually
• Cardholder can get a free insurance policy against accidents with damages up to EGP 30,000
• Cardholder gets access to exclusive rates on air travel redemptions
• It can perform international transactions
• It permits a maximum daily purchase limit of EGP 250,000
• The maximum daily cash withdrawal limit up to EGP 10,000

Gold

• Around EGP 10,000 needed as starting limit to issue the card
• Possibility of issuing up to three supplementary cards
• Cardholder can get a free insurance policy for accidents with damages up to EGP 3,000.
• Cardholder can ask for an emergency medical coverage worth EGP 1000 annually
• It can perform international transactions
• It also permits a maximum daily purchase limit of EGP 250,000
• The maximum daily cash withdrawal limit up to EGP 10,000

Classic

• Around EGP 2,000 needed as starting limit to issue the card
• The maximum daily cash withdrawal limit up to EGP 5,000
• Maximum daily purchase limit can reach EGP 20,000
• Cardholder can receive free SMS notifications when transactions are done

Disclaimer: Information in this article obtained from websites of HSBC, National Bank of Egypt (NBE), Banque Misr, Arab Bank, Arab African International Bank and Commercial International Bank (CIB)

Insurance on credit cards:

Applying for credit card insurance is an option provided by some banks, who coordinate with well known insurance companies such as ALICO or Allianz.

• The bank takes between 0.5% and 0.65% for every EGP 100 the client withdraws on a monthly basis
• The insurance covers the debtor in case of major disability, including death or permanent disability resulting from accidents. They do not, however, cover pre-existing illness or dangerous sports.
• Insurance is usually applicable starting from the age of 18 and up to the age 69.

• For minors (below 18 years), coverage is given to the parent or guardian to the benefit of the account holder
• Consumers have a 30 day grace when cancellation of coverage is possible with a full refund of the first premium.
• For joint accounts, the insurance covers all account holders.

Termination of the insurance policy in the following cases:

1) Policy owner requests the termination of the Policy.

2) Cancelling the credit card.

3) The insured reaches the age limit.

4) The date the Policy is terminated.

5) The company reserves the right to terminate  insurance in case the consumer stops paying the due payments on his credit card to the bank.

Insurance coverage becomes invalid in the following cases:

1. Suicide.
2. Risk of War.
3. For females: pregnancy and/or childbirth and/or abortion and/or miscarriage is not considered disability and no benefit shall be due by then.
4. Disease arising within the first thirty (30) days after the commencement of the insured’s coverage
5. Psychological disease.
6. Nonpayment of the due premium or within the period specified in the policy as  mutually agreed upon between the two parties.

My Money Skills: How is the interest rate on credit cards calculated?

Credit cards are an excellent tool for managing your money on a daily basis when used consciously. Following is a detailed description from the website My Money Skills regarding annual percentage rates, fees, and payments on the total cost of the amount of credit.

Interest rates on credit cards are determined each year. However, these rates are calculated monthly,  and for some cards, the interest is calculated daily and levied on you each month.

For example, if the interest rate on your card is 18% and the total amount of your purchases amount to approximately $ 100 with tax, you must pay an extra $18 in interest if you decide to divide your payments over the entire year and if no new purchases are added to your balance, according to My Money Skills.

If the interest on your card is compounded, meaning that the interest is levied on the monthly interest accrued, the total amount of interest on the annual rate will increase quite a bit.

The bank calculates the monthly interest incurred by dividing the interest rate of 18% over the 12 months of the year. The result is a monthly interest rate of 1.5% on the average daily balance.

The average daily balance is a way to modify the amount that you owe and fluctuates from day to day due to payments and purchases. The calculations used to determine the average daily balance seem complex but are actually quite simple.

The bank adds up the total balance on your card for each day and divides the total by 30, the number of days in a month.

The method for calculating interest on a credit card balance may be done on a daily or monthly basis and includes interest on the unpaid balance.

The interest rate is the percentage of the total amount borrowed over a unit of time and is imposed by the bank or financial institution for using the money, and the interest on the card may be calculated annually, monthly, or daily, according to the website.

The annual fee represents the annual cost of owning a credit card, and some entities that issue credit cards offer cards without an annual fee. The annual fee along with interest and other fees are part of the total cost of credit.