UAE | General
Shops provide money lending service at lower interest rates
If you are in dire need of money but reluctant to withdraw cash from your credit card for fear of a high interest rate and a cash advance fee, some shopkeepers are willing to help you out.
- By Binsal Abdul Kader, Staff Reporter
- Published: 23:12 January 18, 2008
- Image Credit: Ahmed Kutty/Gulf News
- Some shops operate as parallel banks by lending money to credit card holders at lower interest without a cash advance fee. This is mutually beneficial for both the shop and the customer.
Abu Dhabi: If you are in dire need of money but reluctant to withdraw cash from your credit card for fear of a high interest rate and a cash advance fee, some shopkeepers are willing to help you out.
They will give you the money you require at a lower interest rate without a cash advance fee.
A number of shops and other commercial entities nationwide work as parallel banks by lending money to credit card holders, Gulf News has learnt.
Not many complaints arise out of it, since it is mutually beneficial for both the shop and the customer.
For a Dh5,000 deal for about 55 days, you can save approximately Dh300, compared to a cash withdrawal by credit card, according to sources.
"The advantage goes up if you delay repayment," they said.
"I used to utilise the service from an auto mechanic centre in Dubai who gives you the required amount after deducting 3 per cent interest from the total amount," said I.S., a Leb-anese who works with a semi-government organisation in Dubai.
He explained that he can save a 3 per cent cash advance fee charged by his bank on withdrawal and gets a grace period of about 55 days to repay the amount on purchase.
"When I needed Dh5,000, he gave me 3,350 [after deducting Dh150 interest at the rate of 3 per cent]. I heard that he charges 3 to 6 per cent [Dh150 to Dh300 for Dh5,000] but he knows me well so I get a discount. I was able to save another Dh150 as a cash advance fee and get a grace period of 55 days.
Moreover my bank charges just 1.5 per cent interest rate only on purchases," he said.
"So it is beneficial even if I delay the payment," said I.S. He said the auto mechanic centre provides the service only to regular customers.
Nominal fee
However, in Abu Dhabi some shops will give you the service even if you are a stranger but they take a copy of your credit card and labour card and charge you a nominal fee apart from the interest rate, said F.A, an Indian sales executive.
"A computer shop charged me Dh30 as a cash advance fee for Dh3,000 [instead of Dh90 charged by the bank at a rate of 3 per cent] apart from deducting 2.4 per cent as interest rate [which is the rate charged by my bank]."
P.K., a clerk with a private company in Dubai, said he has utilised this service from a travel agency in Dubai. I had to sign a fake bill for a flight ticket. A shopkeeper in Abu Dhabi who did not want to be named said he used to help his regular customers with this service without taking 'much benefit.'
He claimed it is to maintain a good relationship with some of his regular customers. He said all the shops pay a nominal fee to banks on each credit transaction.
"So it is not wrong if we take benefit on only a few transactions," he claimed.
A senior official working with the credit card section of an Abu Dhabi bank told Gulf News his bank charges two per cent of each transaction at point sale on credit cards.
"It varies from bank to bank which may range from 1.5 per cent to 2.5 per cent," he said.
It is illegal for any commercial entity to lend money to its customers.
"Moreover it is a violation of the contract between banks and commercial establishments as they are misusing the credit card service which is only meant for sale of goods or service," said the official.
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