17 Jul Admin Fees on Different Sorts of Revolving Credit
Did you know that there are different admin fees on different sorts of instalment and revolving credit? That’s right, banks and lenders charge different admin fees and interest depending on whether credit is revolving or instalment. Admin fees are also known as maintenance fees. You’ll tend to see them in the context of revolving credit (like credit or store cards). The question is, why are there different admin fees on different lines of credit and what decides them?
Let’s discuss everything about admin fees: what they are, why they matter, and how they affect you. Before we dive in, let’s revise what the different credit types are and how you can apply.
A Crash Course in Credit
There are two types of credit: revolving and instalment.
Revolving
Think of revolving credit like a revolving door. No matter how hard you push, the door will always circle back to its starting point. It has no limit to how many times you can push it. Revolving credit is similar, except you have a limit to how much you can spend. When you pay the lender back, you’ll be able to use more credit again. There’s no fixed amount of credit you can take out in one period, so long as you pay them back sometime.
Usually, revolving credit is unsecured. A lender won’t ask for something like your house or car as collateral (something they can repossess if you default– don’t pay them back). Hence, revolving credit has a higher interest rate than instalment credit. It’s like a markup on the credit because of the higher credit risk lenders take.
Instalment
Subsequently, instalment credit is like a new fixture you might install in your home. You have to put the pieces together one by one to finish the project. Instalment credit is based on the premise that you pay your loan back in instalments– bits and pieces– regularly.
Coincidentally, instalment loans have lower personal loan interest rates. Instalment loans are usually secured, requiring collateral in exchange for access to credit. This way, creditors don’t have to charge the enormous interest they would on unsecured credit.
Types of Admin Fees
Revolving and instalment credit have different kinds of admin fees, depending on the specific loan and lender.
Revolving Credit
Types of revolving credit where you might spot maintenance or admin fees include credit cards, retail store cards, and HELOCs.
Credit Cards
Most credit cards don’t charge a separate admin fee, however, they often have an admin fee that covers maintaining the cost of the account. Some cards, particularly those offering rewards or perks, charge higher admin fees to offset those costs.
Some examples of credit card admin fees in South Africa include:
- Nedbanks’s American Express Gold monthly maintenance fee: R78
- FNB Private Clients Credit Card annual fee: R820 for primary card annually
- Standard Bank World Citizen Monthly Card fee: R169 per month
As you can see, credit card admin fees add up quickly, especially the above, which offer benefits like access to airport lounges and travel insurance.
Store Cards
These cards usually have lower fees than traditional credit cards. They usually have a monthly admin fee. Some examples are:
- Woolworths credit card: R47.50 monthly
- Truworths store card: R42 annually
- Pick ‘n Pay: R10 monthly
Some cards have a monthly fee, some have an annual fee.
HELOCs
HELOC stands for Home Equity Line of Credit. It’s a type of revolving credit that uses your home as collateral and equity as a credit limit. There may be origination, admin, and service fees.
Instalment Credit
Instalment loans usually have admin and interest charges based on the size of the loan. For example, Nedbank charges a monthly service fee of R69 and an initiation fee for personal loans, both of which are based on the loan size. A R50,000 loan over 60 months might have an initiation fee of R1,207.50. Over a year, these fees can add up to an extra R800 for a loan over 12 months, and over R4,000 for a loan over 72 months.
As you may have noticed, admin fees add up quickly and can rack up more debt than you could have realised. If you would like to pay one, small admin fee while paying off all your debt at once, contact Debt Refinance. Consolidate all your debts into a single loan!