What you need to know when using credit to fund Back to School expenses
Back to School is an exciting period for many families. While prominence is typically given to high school learners and children starting foundational phases, professionals also use this time to enhance their skills through further education and training.
Chief Executive of FNB Consumer, Christoph Nieuwoudt says primarily, a new school year has financial implications as families have to juggle expenses like registration fees, uniforms, books, travel and accommodation in some cases. Families that are not in a financial position to fund education expenses often rely on unsecured credit to supplement their budgets. While credit can offer timely relief at this time of the year, it’s important for parents and guardians to do their homework before signing-up.
Nieuwoudt explains the various forms of unsecured credit to help you choose the right solution for your needs:
Student Loan - A Student Loan can be used to fund studies from any registered tertiary institution. The parent or guardian contracts with the bank and is liable for paying the loan. The loan is subject to credit and affordability assessments, which determines how much you qualify for, but has huge benefit for customers as capital repayment only starts on completion of studies and interest rates are generally lower to promote this form of credit.
Personal Loan – For most people, a personal loan is a natural starting point to access credit from a bank as it doesn’t require any security and can have relatively low monthly repayments of a fixed instalment amount. While personal loans are relatively accessible if you qualify, you should weigh the pros and cons when considering a loan which has a longer repayment term (e.g. longer than 60 months) as the total cost of credit can become high.
Overdraft/Fusion - An overdraft is a relatively inexpensive form of unsecured credit that is linked to your transactional bank account. Rather than being a pure lending product, the intent is to provide a safety buffer for unforeseen expenses, emergencies or even just irregular needs such as those for back-to-school. From a FNB perspective, an overdraft also has a zero monthly fee if not used. The solution provides immediate access to cash and there is no specific repayment, but your salary naturally ‘settles’ the balance every month. With the Fusion product, FNB enhances the benefit for qualifying customers by including the facility at no additional monthly fee, while also adding in an interest free period and enhanced eBucks rewards.
Credit Card - The purpose of a credit card is to help you to responsibly fund or supplement your spend, whether regular or irregular, with a budget capability catering for longer repayment periods on say fridges or other bigger items. Credit cards (and Fusion cards also) are often the only form of payment accepted for car rentals, hotel bookings etc. because of the ability to reserve funds at no cost to the customer. These cards typically also offer protection not just from fraud, but also from non-delivery of services or goods, which is very important for online purchases (and airline tickets!) and may also influence rewards and include travel insurance depending on your financial services provider. FNB offers customers an interest free period of up to 55 days on credit cards and you earn eBucks as well as getting travel insurance (up to the age of 70) for tickets purchased with the card.
“The key to getting maximum value from credit is to appreciate the purpose, benefits and cost of each credit solution. You can generate significant value from credit products if you take time to understand the pros and cons of each solution,” concludes Nieuwoudt.