A Credit Card is not just a Piece of Plastic
What is a credit card? A credit card is not just a piece of plastic with an attached magnetic strip and a fancy design. It is a powerful tool that not only increases your spending limit but improves the quality of your life by making all your purchases convenient and flexible. Put it simply, a credit card is an immediately direct substitute for cash, except that it allows you to make purchases that are outside of your immediate budget by borrowing money from the bank. In addition to that, some cards also come with special benefits such as cashback, rewards points and balance transfer.
But with the multitude of different benefits from different credit cards available in the Malaysia, its easy to get lost in the shuffle, especially when you're in the market for your very first credit card. No two credit cards are alike, every card comes with different features and benefits. But before you bury yourself in a mountain of credit card brochures, read on to find out more about the five basic types of credit cards available in Malaysia.
1. Cashback Credit Card
As the name suggests, a cashback credit card essentially gives you a certain percentage of "cash" back for any purchase you make. That's right, the bank is giving you a cash reward for making a purchase with your credit card.
For example, if your credit card has a cashback rate of 5% and you decide to buy a watch for RM200 with the card, a rebate of RM10 will be given to you at the end of the month, meaning that you would have effectively spent RM190 on the watch.
However, you should always read the terms and conditions before signing up for any cashback card. Always remember that some banks might limit the cashback feature on participating merchants by simply issuing a maximum monthly cashback limit.
For instance, if a credit card offering 5% cashback decides to issue a RM50 monthly cap, and you decide to spend RM1,200 with the card. Then instead of receiving RM60 in cashback, you will only be entitled to RM50 since that is the maximum amount that you can receive every month.
If you need a more in depth look at cashback credit cards, check out our Cashback Credit Cards comparison page.
2. Reward Points Credit Card
A reward points credit card is similar to a cashback credit card except that it gives you points instead of cash whenever you swipe your card. But how do you earn points?
The points earned depend directly on the amount of Ringgit spent. For example, if your reward points credit card offers 1x point per RM1 spent, this means that every Ringgit you spend allows you to earn 1 point on your credit card. So what do I do with all my accumulated points?
Accumulated points can be used to redeem special goodies ranging from gadgets, petrol, household items, vouchers, airline miles and etc. Banks usually release reward catalogs showing the prizes that your points can get you. But be warned! Some credit card points can expire, so don't keep them for more than 3 years!
Hungry for more info? Then check out our Reward Points Credit Cards comparison page.
3. Low Interest Rate Credit Card
As the name suggests, this type of credit card specifically charges a low interest rate on balances incurred on the card. In Malaysia, the lowest credit card interest rate readily available on the market is 8.88% p.a.
The low interest rate makes this card the perfect weapon for big spenders who typically carry heavy balances from month to month. While card holders could simply just make the minimum payment every month to dodge the interest rate bullet, the low interest rate means that even if you don't manage to make prompt payment, you won't be taking too much damage from interest rate charges. So either way, you're be escaping safe and sound with your purchases in tow.
Want to find out which credit card offers 8.88% p.a. on interest charges? Ch-ch-check out our Low Interest Credit Cards comparison page.
4. Balance Transfer Credit Card
If your low interest rate credit card fails to alleviate the damage from your untamed spending rampages, then you need to consider getting yourself a balance transfer credit card. A balance transfer credit card lets you shift the accumulated balance from one credit card to another credit card from a different bank to help you avoid paying massive interest rate charges.
Take this scenario for example,
Kevin has an outstanding credit of RM5,000 with Bank Z at 15% p.a. He then applies and is approved for a new credit card with Bank Y. This new credit card allows him to transfer his credit card debt at 0% interest for 6 months with their balance transfer plan. By transferring his debt, Kevin will save RM360 in interest payments over a period of 6 months.
While this may sound like a sneaky getaway plan for people living under mountains of credit card debt, always be careful of the terms and conditions associated with balance transfers. For example, some banks might require new credit card holders to pay up-front interest fees of up to 4% of their total transferred debt.
Need help transfer your credit card debts? Drop by our guide of the Best Balance Transfer Plans in Malaysia.
5. Special Offer Credit Card
The special offer credit card, as you've probably guessed, offers exclusive deals to cardholders with specific merchants. Offers can range from complimentary coffee to discounts on movie tickets and so on so forth.
Credit cards like this typically appeal to the hobbyist at heart. Coffee addict? Then a special offer credit card that gives discounts or freebies on coffee purchases might suit you. Though for the purpose of saving yourself from the sheer disappointment of having the carpet whipped out from under you, always read the fine print!
Want to know if there's a deal at your favourite restaurant? Take a look at our Credit Card Promotions page.