With Black Friday (29 November) and Cyber Monday (2 December) around the corner, many South African shoppers will likely throw caution to the wind in the name of great savings. Whether it's online or in-store, people are often tempted to use credit to make the most of seasonal deals.
“By understanding the types of credit available, you can make credit work for you. It comes down to using credit wisely, especially during the festive season when expenses can quickly get out of hand. With several credit options available, here’s a breakdown of how to make the most of each one,” says Dean Hyde, chief operating officer at PayJustNow.
1. Credit card: Quick and flexible, but watch the interest
Credit cards are often used for spontaneous spending, covering both big-ticket items and daily buys. However, interest rates on outstanding balances can be steep, and missed payments could harm your credit score.
“Use a credit card if you’re confident you can pay off the balance quickly. For a December spree, this might mean being self-disciplined to clear it by January. And knowing that January always feels like it’s 12 weeks long, it becomes imperative to budget responsibly.”
2. BNPL: A flexible alternative to credit cards
For those looking to spread out payments without interest, BNPL can be a smart alternative. It’s a tool to be used for purchases that would ordinarily fall just outside of your budget, but that you can manage in smaller, monthly payments without having to worry about interest or fees. It also removes the temptation to avoid your payment instalments when Janu-worry comes around.
“There are many providers in the market, so be sure to choose one that aligns with your salary cycle. For example, monthly or twice-monthly payment dates. Also, choose one that’s easily contactable should you need to manage any of your instalments,” says Hyde.
“Salaries are often paid earlier in the month of December. Consumers need to be vigilant in ensuring they have the funds available to meet all their outstanding payment obligations from Black Friday by the time the end of the month rolls around. From a BNPL perspective, this helps maintain an open and usable facility into the new year, and will ensure your credit score is not adversely affected.”
3. Revolving credit loan: Reserved for essential, larger purchases
Revolving credit loans allow for repeated access to credit as you pay down the balance, but they often come with variable interest rates that can add up if not paid off promptly. Hyde says that if you’re using revolving credit, it should be as a last resort, and for essential and planned big-ticket purchases only. “Consumers must monitor interest rates as well as terms and conditions very carefully on revolving credit facilities.”
4. Personal loan: Best for planned, larger purchases
According to TransUnion, personal loan originations (across banking and non-banking sectors) increased by 13.4% in the last quarter of 2023, showing the highest growth among all credit categories. Personal loans are fixed, predictable, and may offer lower interest rates than credit cards. While suitable for major planned expenses that are paid off over 6, 12, or 24 months, they aren’t ideal for impulse purchases.
“If you’re opting for a personal loan, make sure it’s an investment that you won’t regret paying off months later,” says Hyde. For example, if you’re using a personal loan to secure your education, do your research to find a provider that allows you to adjust your lending solution or repayment option should emergencies crop up along your repayment journey.
Planning ahead
It’s wise to think about future essentials that may stretch your budget in the months ahead, like Christmas gifts, school supplies, or planned home improvements.
“The best rule of thumb is that your credit term shouldn’t outlast the product’s use. This Black Friday, taking a smart approach to credit can make all the difference. By focusing on essential purchases, interest-free options or ensuring that you factor interest into your repayments and budgeting, shoppers can maximise cash flow and start the new year on the solid financial ground,” says Hyde.
PERSONAL FINANCE