Are you as confused as I am about RCS cards?
I was asked to write an article about RCS cards and my first question was: “What is it, why would I want one, especially if I already have a credit card?”
Well, to answer the last part of my question – the RCS card is exactly that – it’s a credit card.
Basically it works like this
Have you ever gone into a furniture store wanting to buy a lounge suite but you didn’t have the cash?
You had to sit down with a consultant and either:
- made a lay-bye, or
- applied for a loan or a card
All you wanted was get your hands on that new lounge suite.
RCS understands this and are in the business of providing credit to consumers. In other words, they provide credit cards, loans, and insurance to people like us.
They came up with the idea of rounding up a bunch of retailers who wanted to focus on their core business of selling consumer goods. Yes, the extra money these businesses made by financing goods was great, but a lot of financial risk came with that. Think of African Bank Investments Limited (ABIL) and Ellerines where money was lent without requiring security between 2012 and 2014.
These stores no longer had to worry about:
- you defaulting on your payments,
- having to send out statements every month
- having to pay debt collection agencies to break your arms and legs (just kidding!)
- paying for all the additional staff to take care of all of the admin.
These stores chose to out source their financing. RCS would pre-authorise the finance on behalf of the client. All the client had to do was walk in and buy what they wanted by swiping their RCS card.
The client can then pay in 3 ways:
- Straight (revolving credit loan)
- 24 month budget repayment plan, or
- 36 month budget repayment plan
But be careful with the budget options since they reserve the right to cancel the budget facility at any time. There is also a minimum amount involved with the budget options. You can’t buy for R100 and finance it over 36 months, but hey, but there’s no harm in trying I suppose?
How do I find a store that accepts RCS cards?
To date 21, 000 stores have signed up as part of the RCS network. All you need to do is look for the RCS logo at your favourite store.
Another way is to visit the RCS website and visit their shopping network page to find the store you’re looking for.
What do they need from you when applying?
- Firstly you need to be 18 years old with a SA ID to apply.
- Then you need a job earning at least R1, 000 a month
- Then they need 3 months bank statements or payslips to prove the above
How much credit will they give me?
Anywhere between R1, 000 and R40, 000 depending on your credit history and income
They use your credit score (Made up of your credit and late payment history which they get from the credit bureaus) combined with your income and expenses to make this decision.
What’s the catch?
There’s always one, isn’t there? And it’s about asking the question, “how much are they going to charge me for borrowing money?”
- Okay, so there’s a monthly service fee for managing your account. This is controlled by the National Credit Act.
- There is also a once off initiation fee added to your account as part of your debt attracting interest. It’s better to pay this as part of your first instalment but you need to tell them if you want it like this otherwise it becomes debt.
- The interest rate that they may charge is also controlled by the National Credit Act. They will inform you 30 days after the rate has changed. This only applies to the revolving loan (Straight) option, and not to the Budget options. In other words, if interest rates drop during the 24 month or 36 month budget term, you won’t enjoy the lower interest rate if you chose the budget options. Interest is calculated on a daily basis and is added onto your principal (main) debt every month.
- Then they will periodically charge you a service fee as long as your account is open. This is also controlled by the Act. All credit cards have annual fees, so no tricks involved here.
- There’s also customer protection insurance which settles up to R10, 000 of your account on death and permanent disability. It also takes care of 6 months repayments on either temporary disability or loss of income (retrenchment). Once again, it’s standard with credit cards, and you can ask them to remove it if you have life insurance elsewhere.
- If your account goes into arrears, they will charge you administrative costs and any fees relating to debt collectors. So by not paying; you end up paying even more!
Which part of your debt is paid first from your monthly payments?
So you’ve made your monthly repayment. Here is how they allocate that money:
- Interest portion owing to them is paid first
- Then payment of fees and charges is paid next
- Lastly, the debt is paid back starting with the oldest debt first.
Our take on this
Credit is never to your advantage, so be careful. Always ask yourself, “How much is this going to cost me over the term?”
So for instance let’s say you wish to loan R1, 000 and repay the loan over 24 months. The credit provider arranges repayments of R100 a month which sounds affordable, but bear in mind that it means paying back R2, 400 over the 24 months.
Is paying out R1, 400 to lend R1, 000 really worthwhile?
But if you’re looking to loan money, then RCS is as good as any other credit provider.
And having an emergency line of credit is great…ask me, two weeks ago the door of my refrigerator fell off, and somehow, somewhere I had to find R5, 000 for a new one.
Until next time.
The InsuranceFundi Team