5 Surprising Ways Credit Cards Are Better Than Mobile Loans

Mobile money loans have grown exponentially over the last five years and are projected to become the biggest credit distribution channel by commercial banks in Kenya. The convenience of mobile loans has greatly helped with their exponential uptake in the market, apply for a loan from the comfort of your mobile phone and receive it immediately, SIMPLE! No more queuing up at your local bank branch, putting up your car or house title deed as collateral. All that is in the past, East Africa has gone mobile with Kenya at the helm.

Many financial organisations like Tala, Branch and others have come into the mobile loans market, providing unsecured micro credit facilities to millions of Kenyans for very low interest rates. Banks are cutting back on staffing, closing physical branches and focusing on mobile and online platforms to service clients. Equity Bank, Commercial Bank of Africa (CBA) and KCB process on average between 70,000 and 100,000 loan applications a day each on their mobile platforms. They disburse close to KSh 50 billion a year in loans on mobile, soon to eclipse loans offered in branch.

Kenyans embraced mobile loans even in the high interest periods when banks were charging interest rates of up to 90% per annum on mobile loans. A simple loan calculator shows one would repay almost double the loan amount for a one year loan.

Credit Cards

Credit cards have existed in the market for decades but their uptake has always been very low for several reasons. Primarily, many people don’t like credit cards because of misinformation, they don’t understand credit cards and have the notion that credit cards will sink you into debt.

Secondly, many establishments did not accept card payments therefore limiting the utility of carrying a card let alone credit card. In Kenya, this has greatly improved, most restaurants, bars, hotels, shops and malls now accept card payments with NO processing fees. In addition, with the recent capping of interest rates on all credit facilities, credit card holders in Kenya now enjoy some of the lowest credit card interest rates in the world.

Pay ZERO Interest On Credit

Most people don’t know this but with every credit card in Kenya today, you can get an interest free period of up to 60 days. Most credit cards offer a period of 30 days from the date of the statement where you pay ZERO interest on your credit amount if you pay your entire balance in full. It is easy to get this 30 days to 60 days, simply make all or most of your purchases early on in your billing cycle. For example, any purchases made on your credit card on the 1st day of the month, they will enjoy 30 days until the end of the month and a further 30 days interest free period after the end of the month until the statement is due for payment.

For mobile loans, there is a mandatory processing fee that is charged on disbursement of the loan, interest of up to 14% pa that is charged on the loan and MPESA charges on repaying the loan.

For example, on a KCB MPESA loan, for a loan of KSh 50,000, it will attract a fixed fee of 2.25% and an interest of 1.2% per month.

For a credit card, a credit of KSh 10,000 paid 30 days will attract ZERO interest charges. Do your December holidays shopping on your credit card and pay your bill at the end of January. Using a credit card responsibly can give you an extra line of credit of several hundreds of thousands of shillings for up to 60 days interest free!

Note: The interest free periods will apply to purchases only, using a your credit card to withdraw cash from an ATM will attract a cash advance charge and start to accrue interest on that amount with immediate effect.

Flexible Repayment & Balance Transfer

Credit cards offer much more flexible repayment options than most mobile loans on top of offering up to 60 days interest free period. Outstanding balance on a credit card can be rolled over indefinitely, most credit cards only require the a minimum of 15% of the outstanding to be paid for the billing period.

In addition, credit cards allow what is a called a balance transfer. This allows the individual to transfer a large outstanding balance from one bank to another by paying a very small fixed fee. Once this is done, a grace period of up to 1 year before the person has to start repaying the loan. This is not something that is possible with mobile loans. Currently, KCB mobile loans are only disbursed for a loan period of 1 month only and most of the other mobile lenders don’t have a facilitate for customers to roll over their loan repayments.

Curb Poor Spending Habit

Most people in Kenya have now gotten used to using mobile money services like MPESA, Airtel money and Equitel to pay for goods and services. Having money on your mobile phone makes it so convenient to pay and transact, this convenience however has brought rush and poor spending budgets. Most people spend majority of their time on their mobile phones, this makes it more likely to access their mobile cash and spend it, buying airtime, mobile sports betting, sending money to friends and family, liquid mobile cash increases instant spending. With credit cards, this is much less likely to happen, credit cards can’t be used to do mobile purchases like airtime and betting, they are most used in establishments with card payment terminals and online.

Global Acceptance

Use your credit card in Kenya and overseas. Travelling to Dubai, China, America and other global destinations? All local credit cards are issued by leading payment providers Visa, MasterCard, American Express, this allows you to shop and spend at millions of outlets and ATMs worldwide. In addition, most credit cards are multi currency, pay for goods in Euros, US Dollars, British Pounds with a single card. This is not something that mobile money can offer as it is only denominated in Kenya shillings.

Earn Rewards

Get rewarded for spending your money. Most of the credit cards in Kenya have great rewards for members to be enjoyed simply for using your credit card.

Get great rewards like cash back on all fuel purchases, access to exclusive airport lounges, hotels and resorts.

Earn points for every shilling you spend and redeem your points for purchases, gifts and hampers at a wide range of participating partners. Are you a frequent traveller, some cards will offer travel insurance cover for delays and baggage delay or loss free of charge.

Although mobile loans continue to become more popular with most Kenyans, the above reasons prove why credit cards still remain a great financial tool for those looking to spend more wisely and keep their credit in check.