Nigeria is experiencing an unprecedented fast-paced growth across practically all sectors of the economy and the banking sector is not left out of this growth. Nigerian banks now allow you to open a bank account online in minutes, transfer funds and make payments on desktop and mobile platforms and you can access cash any time with ATMs that operate 24/7.
About 8 days ago, First Bank Nigeria announced the new FirstBank Naira Credit Card with which consumers can purchase goods and services online and pay later in installments. The announcement effectively adds First Bank to the list of Nigerian banks such as Diamond Bank and Stanbic IBTC that offers Nigerians Naira credit cards.
A credit card is simply a payment card linked to a revolving account with a line of credit from which you can borrow money to make purchases based on your promise to repay the issuer. In essence, a credit card allows you to shop now even if you don't have the money and then pay later.
However, before we begin dancing in the streets because our banks are now offering us credit cards, we should stop and ask ourselves if we really need the almighty credit card. This piece seeks to explore three reasons why you don't really need a credit card.
Credit Cards Limit Your Ability to Make Money
The first reason you don't need a credit card (from a personal finance perspective) is that credit cards have the power to severely limit your ability to make money and create wealth. When you want to buy a product/service and you are short on cash, you brain will naturally go into productive mode to figure out a way to make more money to cover the potential expense.
However, when you have a credit card, you will not allow your brain to go through the process of generating ideas for making more money; rather, you'll just whip out the credit card and spend the money you don't have to buy the things you probably don't need. Hence, you should be warned that your ability to think creatively and to make more money might disappear when you have a credit card.
The Interest Charged is Somewhat Exorbitant
The use of a credit card effectively means that you are borrowing money from an issuer to offset the cost of your purchase. However, banks are in the business of making money and they will charge an interest for any money they lend you directly in cash or indirectly through a credit card.
I don't have an issue with the fact that banks charge an interest in their credit cards, but I am not comfortable with the fact that banks typically charge full interest on the entire outstanding balance if you miss a repayment.
The credit cards available in Nigeria usually have a 30-day billing cycle in which you must pay the balance on the credit card spent each month. Hence, if your credit card has a limit of N50,000 and you make a N10,000 purchase, you will be required to repay the N10,000 within the billing cycle. If you repay the balance during the billing cycle, you will not be charged an interest and you'll only be obligated to pay the regular management and commitment fees.
However, if you do not pay your balance in full, let's assume you only pay back N9,000 out of the N10,000 you spent at the end of the billing cycle, you'll be required to pay an interest on the N10,000 and not the N1,000 that remains.
Nigerian Credit Cards Lack REAL Credit
The third reason I think that you may want to think twice before obtaining a credit card in Nigeria is that the so-called credit cards usually require that the bank hold down at least the equivalent of your credit limit in an account with them. For instance, First Bank requires that you pay 125% of your credit limit into a domiciliary account with the bank.
Hence, you will practically need to put the equivalent of your credit limit up as collateral with the bank before they issue you a "credit" card and I find it hard to understand how that qualifies as a credit card.
Image Credit: www.telegraph.co.uk