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Credit Cards
Thursday, February 14, 2008
Credit Cards

Credit Cards is a very convenient method of making purchases without carrying cash.
The way a normal credit card works is that you make purchases using your card and the bank issuing the card will pay on your behalf to the merchant providing you the product or service.


The bank deducts a certain percentage (2.5% normally) from the merchant in return for processing the transaction and adding the money to the merchant's account.
From the customer side (the card holder), he is given a loan for that amount and given a grace period (normally 26 days to a month) to repay the amount interest free. If the card holder decides he does not want to pay the full amount, he pays the minimum (printed on the monthly statement), and the rest of the unpaid balance gets deferred in the form of a loan with compound interest.


Many consumers have gotten used to this, and use the card as a loan machine.
Apart from being convenient, credit cards offer other benefits, such as frequent flyer miles, donations of a certain amount or percentage to your favorable charity, consumer protection (can refund the price of a faulty product), extended warranty, ...etc. All depending on the specific card in use. The largest issuers of Credit Card worldwide by far is VISA followed by MasterCard. There are lots of others as well, including Diners Club, American Express, Discover (USA only), JCB (Europe), and others.


There are certain services that one cannot get without a Credit Card, including Car Rentals in North America, and many internet services.


Another feature of Credit Cards is that you can get Cash Advances using it at bank outlets and Automatic Teller/Banking Machines (ATMs/ABM). This is treated as a loan, and interest is to be paid on it. Therefore a Muslim should avoid this, unless it is an emergency, where such an exception would be permissible.


In short, this has become a very pervasive aspect of our modern life.


For the Muslim, a Credit Card can be had, but extreme care must be taken not to be late in paying the statement balance in full, so as not to incur interest. If you travel on a regular basis, you may miss a statement, so maybe you want to talk to your bank about this and explain that you travel and make other arrangements.


Also note that because you are paying during the grace period on a regular basis, you will eventually be "flagged" as an unprofitable customer to the bank (you use their money for a month, and generate no interest revenue for them). There has been reports of some Credit Card Issuers in the USA asking customers to pay an annual fee to compensate for this "loss of revenue". If this is the case, find another credit card company to do business with, there are too many of them.

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posted by Beebee @ 11:44 PM  
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