Credit Cards
August 22, 2023
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EDITOR'S NOTE: This article is a part of our Money254 Partner series and is produced in partnership with Absa Bank Kenya . For more on Money254’s editorial policy, read here.
Have you ever been out shopping, and found an item that you needed being sold at a highly discounted price, but you did not have the money to buy it off at that very moment?
Well, sometimes it feels like nature is conspiring against you. You notice so many items on offer when you do not have all the money to make an outright purchase.
And sometimes, by the time you get hold of the money, the discounted sale price has either expired or the item has sold out.
It's probable that there are instances where you have considered taking a loan to make this kind of money-saving purchase. But, as may often be the case, the cost of the loan may simply push the item’s cost such that the discount may no longer make sense.
It could also be that you had the money in a savings account but you did not want to interrupt your progress, or maybe the time required to access the funds was a bit too long.
Now, imagine having the ability to make these purchases on borrowed money where you pay zero interest for an extended period of time, say a few weeks to payday - or even pay a small interest for a few months as you stagger the payments without affecting your routine budget.
Now, this world of possibilities can come true with Absa’s Credit Card facilities which not only introduce convenient shopping in your life, but also bring along a number of other benefits including a chance to further build your credit history, enjoy cashback and rewards in your purchases, among others.
A credit card is a type of payment card that allows you to borrow money from a financial institution to make purchases or pay bills and sometimes - especially during emergencies - to also withdraw hard cash from an ATM.
But unlike payment cards such as debit cards where you are simply using a non-cash method to spend your own money that is in your own bank account, with a credit card, you are being extended an open credit line where you can spend at will and pay back before the end of the billing period with zero interest.
For example, Absa’s Classic Credit Card offers users a 50-day interest-free period. Which means, if you get this card that has a limit of up to your 1 times your net salary, for example Ksh100,000, and you buy a filled 13kg gas cylinder for Ksh7,500, on April 1, 2023, you have up until May 20, 2023 to pay back this money with zero interest!
What normally happens is that a credit card issuer will be sending you a statement/bill every 30 days from the day you signed up. So if it’s April 1, 2023, you’ll be getting a statement every 30th or 31st of each month
The statement shows you all the purchases you have made for the 30 days. Now, this bill (for example the bill for the month of March 2023), is not due until the 50 interest-free days are over i.e. April 19th for the March bill and May 20th for the April bill.
So, a credit card is a financial product that allows you to access credit that you do not necessarily have to pay interest on as long as you pay back the amount owed within the interest-free period.
Now, if you are not able to pay back the amount borrowed within the interest-free period, or if you want to carry the balance for longer - maybe you need to be liquid to pursue other opportunities - the balance starts earning interest.
You cannot carry the entire amount over to the next period since credit cards require one to pay at least a minimum amount every month to keep your account in good standing. For the Absa Classic Credit Card example, the minimum monthly payment is only 5% of what you owe or a minimum of Ksh1,000. That would be just Ksh1,000 for our 13kg gas purchase.
Note that it is generally not advisable to pay only the minimum amount every month since there is potential for the costs to escalate if you keep doing this for successive months eventually compounding the interest.
It is also not advisable to keep a balance when you have the ability to pay back due to the risk of increasing the costs when interest accrues over several months.
Why pay back every month? Once you repay what you owe, the amount available for you to borrow increases.
For example, if you are approved for a Ksh50,000 credit card limit and you spend 20,000 on March 25, 2023, and then on April 10, you see an important product on a big discount that costs Ksh45,000 and you don’t have the cash, you can simply pay back the Ksh20,000 and instantly be able to access the full limit, make your purchase and still be left with Ksh5,000 to still borrow that month.
Top Tip: Never borrow without having a good repayment plan. The fact that you can access Ksh100,000 instantly is no licence to splurge.
Like a debit card, a credit card is typically issued to current account holders upon application - although it is possible for non-bank institutions to issue credit cards (this is quite rare in Kenya, though).
While it is typically issued to people who are bank account holders with the issuer, the credit card stands out in that you need not be a current account holder with the issuer to qualify for one. For example, you could be holding a current account with bank A and still qualify for a credit from Bank B where you do not hold an account.
Since it is a credit facility, your application for a credit card is subject to approval once the bank is satisfied that you meet the minimum requirements. The bank will typically look at factors such as income and credit history when considering this decision.
A credit card approval also comes with a credit limit which refers to the maximum amount of money you have available to borrow. Think about it like a stash of cash lying somewhere that you can borrow from whenever you want and replenish every cycle if you do not want to pay interest.
If you do not need to borrow, the stash of cash stays intact, no stash maintenance fees are charged etc, and the day or month when you want to borrow, you will instantly be able to draw from the stash.
For example, if the card limit is Ksh100,000, it means you can spend up to Ksh100,000 within each billing cycle (that factors in the interest-free period) without needing to repay or get authorisation from the issuer.
You only have to pay a minimum amount to keep your account active and in good standing - that is if you are not in a position to repay the full amount when the bill is due. If you can, it is advisable to always repay back the amount borrowed in full within the interest-free period since carrying a balance activates interest. And paying the minimum amount for several consecutive months could mean the interest compounds (i.e. the interest accrued earns interest too) significantly increasing the total cost of this credit.
If you find yourself in a position where you may need to keep the credit card balance for several months, you may want to speak to your issuer about converting your credit card balance into a personal loan to lower interest. This option is available for all of Absa’s Credit Cards.
Your credit limit is based on factors such as your credit history, income, and other factors depending on the bank’s internal policies.
As we have already mentioned, all credit cards come with an interest-free window - within which you can spend funds that are within your limit and not pay any interest.
In Kenya the interest-free period for credit cards ranges from 30 days to 55 days for most credit cards.
Different issuers (primary banks) will have varying documentation requirements as you apply for your credit card. However, the most common requirements include:
Absa is one of Kenya’s leading banks and has been a pioneer in a number banking innovations including the launch of Kenya’s first ATM, Whatsapp Banking, among others.
This part of the article lists five types of credit cards offered by Absa. A review of the card requirements, fees, and their unique offerings will be provided to help you decide which one works best for your needs.
Before we talk about the unique features for each card, here are some universal features you will access across all Absa credit cards.
In the next section, we discuss the unique features of each individual Absa Credit Card to help you figure out which is the best option for you.
Each Absa Credit Card is tailored to a specific user. The Absa Classic Credit card, which is the first on the list, is tailored to meet the needs of a user who often needs the convenience of card shopping even when their current account is low.
Remember a month when your regular expenses budget was overtaken by a more pressing side hustle investment that promised much greater returns?
This card could be a great game changer for you. Rather than take up a personal loan to smoothen out the money gap, this card offers greater convenience without introducing maintenance fees.
Eligibility: To qualify for the Absa Classic Credit Card, you must have a net income of at least Ksh20,000 if you are an Absa customer and a Ksh40,000 monthly net income if you are a non-Absa customer.
Card Limit: The Absa Classic Credit Card comes with a card limit of up to Ksh200,000.
In terms of the minimum repayment amount, as we calculated in the example on the 13kg gas purchase above, you can keep your Absa Classic Credit Card in good standing by simply paying only 5% of the amount you owe.
This is typically for the periods where you may not have the cash to repay or want to keep the balance for longer to mobilise all your liquid cash towards some profitable activity such as your side hustle.
The credit limit can be utilised by shopping directly with the card, withdrawing on ATMs, or accessing the credit balance through the mobile wallet. Note that if you use your credit card to withdraw cash from an ATM - known as cash advance - this transaction does not have an interest-free period; the interest begins to accrue right away. That is why it is advisable to use a credit card to withdraw cash only in emergencies.
Rewards and benefits: The card comes with unique benefits tailored to help make your day-to-day expenditure more worthwhile. With this card, you get access to discounts from local merchants and service providers who have an arrangement with Absa.
Annual Fee: The icing on the cake? The Absa Classic Credit Card does not have an annual fee. It is free for life!
The second credit card offered by Absa is closely related to the first one and is known as the Absa Classic Rewards Credit Card. The major difference with the Classic Card is that this comes with rewards, benefits and has an annual fee.
Eligibility: To qualify, you must have a net income of at least Ksh20,000 if you are an Absa customer and a Ksh40,000 monthly net income if you are a non-Absa customer.
Card Limit: A card limit of up to Ksh200,000.
Rewards and benefits:
Enjoy up to 0.5% cashback rewards on all your purchases, discounts from 100+ local merchants - from dining to travel to electronics and much more
Choose from 3 discounted insurance packages with monthly premium payments that start from as low as Ksh194, and enjoy travel and accident covers, card skimming, and loss at ATM protection.
The Classic Rewards Credit Card distinguishes itself from the Classic Credit Card with the increased rewards. The more you use it, the more you enjoy the cashback rewards which are pegged at 0.5% of all monthly transactions.
Annual Fees: The card comes with annual access fees of Ksh3,000. If you are a frequent shopper, you could easily make back the annual fee and save even much more throughout the year. That is one reason why some users choose a card with an annual fee - that the rewards will offset the fee.
The Absa Gold Rewards Credit Card comes with the standard features across the Absa credits cards, and adds its own unique benefits.
This card is tailored to an individual who while still living on a budget and are watching their expenditure, they can also afford a little luxury.
As such, they would find benefits such as local travel cashback or discounts to be very useful in actually allowing them to enjoy some luxury on a budget.
They will always consider whether the expense they are about to incur is in line with their long-term goals. And if so, then the idea of buying now to pay later - with a good possibility of paying zero interest - would make good sense to them.
Limit
Depending on your income, other obligations and credit history, for the Absa Gold Rewards Credit Card, you can qualify up to a limit of Ksh200,000.
Eligibility
To qualify, you will need to have a minimum net salary of Ksh50,000 per month.
Annual Fees
The card comes with a Ksh6,000 annual fee. If you want a supplementary card, you are charged Ksh4,000 and card replacement is free.
Rewards and benefits
Other benefits of the Absa Gold Rewards Credit Card, in addition to the standard Absa credit card features highlighted at earlier in this article, include:
The platinum card comes with all the standard Absa credit card features highlighted above and a host of extra perks designed for users driven by self-actualisation and consider convenience more of a necessity.
The card has the needs of a frequent international traveller embedded where they may not have much hesitation gifting oneself some luxury from time to time.
Eligibility: To qualify, your net income must be at least Ksh200,000 per month.
Rewards and benefits
Limit: The Absa Platinum Credit Card has a limit of between 2.5x and 2.8% your total net income up to a maximum of Ksh200,000. For example, if you earn a net income of Ksh200,000, you could qualify for a credit card limit up to a maximum of Ksh560,000 with the Platinum Card.
Annual Fees: The card comes with an annual fee of Ksh8,000. With cashback rewards and a host of other rewards that come with the Absa Platinum Credit Card, it is possible to make back much more than the annual fee if utilised well.
Note that if your lifestyle does not match the use cases for the rewards packed with this (or any other) card, then you are not going to enjoy the inherent benefits. Always choose the card with the benefits that you are most likely to utilise.
The Absa Signature Credit Card is designed with a frequent international traveller in mind.
This is someone who can be termed as a leader, either in business or society and their frequent travel and expenses have something to do with creating opportunities for others.
It comes packed with benefits that make their expenditures worthwhile and convenient.
Eligibility: To qualify, your net monthly income must be at least Ksh500,000.
Rewards and benefits
Limit: The Absa Signature Credit Card comes with an extended limit of up to 2.8 times your monthly net income to a maximum of Ksh 4,000,000. For example, if your net income is the minimum to qualify for this card at Ksh500,000, you can qualify for a limit of up to a maximum of Ksh1,400,000.
Annual Fees: The card comes with an annual fee of Ksh8,000. As mentioned earlier, and now with a cashback from 1.5% among other benefits, it is very possible to make back so much more than the annual fee.
Some other potential fees applicable across the 5 Absa credit cards include;
Absa has five types of credit cards for customers to choose, as discussed above, based on preference and the set minimum qualification.
Each credit card is designed with a specific user in mind and graduated based on income and potential needs. This means there is a credit card for everyone at every income level with Absa.
Absa’s 50-day interest period applies for each of the five cards and allows customers to avoid incurring any costs when they repay the borrowed amount within the window period.
For example, if your credit card bill covers you from 1st to 31st of March, you will have up to 50 days when the expenditure will not attract interest. This means the bank will start charging interest on April 19 when the bill will be due.
Absa Credit Cards also have worldwide acceptance meaning you can use them to travel around the world or even make purchases from international ecommerce sites.
The Absa credit cards also promote responsible spending with the following features:
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