A credit card provides a line of credit which can be used to make payments. It is different from a debit card in that when you use a debit card, the money gets debited from your bank account directly, whereas a credit card gives a line of credit paid off on a monthly basis.
In India, in the past decade, there has been a surge in the number of credit card users, with private and public banks ranging from Kotak Mahindra Bank to the State Bank of India offering various types of cards. With an improvement in technology, the usage of credit cards has increased rapidly. In addition, payments for almost everything are now online.
Due to demonetization, which led to insufficient currency flow, citizens turned to cards to keep up with monthly purchases. In January 2018, according to the Reserve Bank of India, 36.2 million credit cards were being used.
The first question is, why go through the trouble of getting a credit card when you can use cash for just about everything? Cash is accepted everywhere, it’s tangible, and you don’t have to pay interest. While these are all valid points, credit cards provide a different meaning to payments. They allow you to keep track of transactions, make large purchases, provide benefits like reward points and discounts and are very useful when you have to make sudden payments.
Though the shiny plastic may seem tempting and highly sensible, looking at both sides of the story is essential. And if you decide to get a credit card, knowing the best and safest way to use it is imperative. So when deciding to get a credit card, it may help to understand both the pros and cons of having one.
The most significant plus point of a credit card is the way it functions. Deferred payment allows you to purchase something and pay for it later. This provides the cardholder with simplified access to credit. Also, unlike a debit card, your bank account will not be debited every time you use the credit card.
The procedure of applying for a credit card is much easier now than it was in 2008. Banks are much more eager, as well, to provide their account holders with credit cards.
When using a credit card, you create a line of credit. The bank receives a complete history of your payment schedule and your usage. Good credit history may make it easier for a potential borrower to get a loan from the bank.
A credit card statement comes at the end of every month, providing a detailed record of all the payments made, the available credit and the outstanding on your card. This can be extremely helpful when outlining a budget. To make matters more accessible, the bank sends an SMS or email to the card user every time it is swiped, ensuring not only a record but also a security measure against theft.
Today, credit cards provide various incentives and offers. Banks advertise their cards based on these incentives. Offers include discounts, cashback and reward points, which can be later used to make purchases like aeroplane tickets. For example, Kotak Mahindra Bank offers a PVR Gold Credit Card, which ensures the cardholder 24 free tickets at PVR Cinemas all year round.
Another advantage of using a credit card is the EMI or equated monthly instalments facility. Credit card users can opt for the EMI facility and pay off the monthly instalments at decent interest rates when making large purchases, like a television or a laptop. This way, the buyer is not forced to pay the lump sum and does not put a dent in his bank account. Online shopping sites like Amazon and Flipkart provide EMI options, making making purchases through a credit card all the easier.
Credit cards have an interest-free period of about 45-60 days, during which you are not charged interest on outstanding credit as long as the due balance is paid off on payment day.
A credit card is handy when making large payments that appear out of the blue. For example, a credit card can come in very handy in case of sudden medical expenses.
CPP India and OneAssist protect against theft or damage to the credit card, including 24 hours call service to block lost or stolen cards, credit card insurance and assistance in the replacement of the card.
Having a credit card reduces the hassle of carrying and converting cash abroad. Though they may charge a higher interest rate, credit cards are easier to use than foreign cash.
Though the advantages are many, there are some cons of having a credit card that must be taken into consideration before applying for one:
Banks charge a significant interest rate on credit cards, at an average of 3% per month. In addition, bills not paid are carried forward to the next month, and the cardholder is levied with fines and charges.
The ease with which a credit card can be used and the option of having more than one make it very easy to go above your limit. Since you cannot see the money being deducted from your bank account, buying more than your income can handle becomes tempting.
Overspending can lead to debt. Your income can cover only a certain amount of interest payments, and spending over the limit can lead to an inability to pay due bills on the card.
With a credit card come a host of hidden costs, penalties, fines, and fees. Though the system may seem straightforward, many charges like taxes and fees like joining fees and late payment fees are levied, racking up the expenses.
The same technology that makes credit cards so easy to use also makes fraud possible. With cybercrime on the rise, it is easy to procure a credit card number and use it to make large purchases without the cardholder finding out until the bank statement arrives.
You may also want to know the 13 Things You Need to Know About Credit Cards.
When deciding whether or not you need a credit card, all the above factors, pros and cons, must be kept in mind. A credit card is a huge responsibility. However, its benefits cannot be denied. In the current economic climate, with issues of GST and demonetization, it’s imperative to consider all these points while making a decision.