High credit card interest rates drive Saudis away
Saudis who have credit cards are fast falling into a debt trap mainly because of indulgence in unplanned and expensive foreign holidays funded by plastic money and Internet shopping.
A survey carried out by souqalmal.com in the Kingdom has revealed that most Saudi credit card holders struggle even to pay the interest rates charged on cash withdrawals. The survey with a sample size of 1,000 Saudi citizens revealed that one in five Saudi credit card holders used their cards to withdraw cash.
Commenting on this trend, Essam Khalifa, an economist and member of the Saudi Economic Association, said: “This means that most Saudis can’t see through the month based only on their salaries, and have to rely on withdrawing cash from credit cards. Frankly speaking, most Saudis use up their salaries much before the end of the month, and they find it difficult to budget their expense or to save money.” Khalifa pointed out that most Saudis try to raise money through bank loans and credit cards even when the interest rates are high, making repayment much more difficult.
According to Saudis who participated in the survey, the interest rates on credit card borrowings are very high, often higher than the borrowed money itself.
“This can be attributed to lack of awareness among card-holders about the interest rates. Saudis look for avenues to raise additional money especially when they want to travel, without paying attention to the extra cost that they will be paying,” said Khalifa.
Confirming his claim, the survey has revealed that 30 percent of the Saudis who participated in it confirmed using credit card to spend on travel and Internet shopping. The survey also found 40 percent of Saudis consider credit cards unattractive. According to souqalmal.com, Saudis who raise money using credit cards are putting themselves in major risk since some of them are already in debt.
The economist goes on to point out that high inflation rates and the decreasing purchasing power of Saudi riyal were also contributory factors. “Saudis are getting into a tizzy managing their budget when 25 percent of their salaries go toward such repayments,” he said.
Dr. Mohammed Shams, another economist, said that many Saudis have begun demanding low cost apartments and low cost schooling only because they want to divert available funds to other expenditures owning luxury cars, travel to Europe and other such extravagant needs.
“Due to inflation and unfixed minimum wages that most middle-class families are receiving in the Kingdom, Saudis are demanding low-rent apartments and low-cost schooling. Unfortunately, most Saudis pay more attention to show off rather than focusing on other important needs like education, health and housing,” he said.
The survey also revealed that almost 50 percent of Saudi citizens do not have credit cards because they consider it unattractive.
When it comes to selecting credit cards, the survey found that one out of four Saudis chooses a certain card due to the price, which is invariably the most important aspect, and one out of five Saudis chooses a certain credit card due to the interest rate.
There are also other factors like offers of air miles, access to airport VIP lounges and redemption with cash discounts and offers, which determine which credit card an individual selects.
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