Credit card use has been on the rise in India, especially after demonetization advocated its widespread use. The Covid-19 pandemic further encouraged its usage, offering payments devoid of contact. While the advantages of credit cards significantly outweigh the disadvantages, Indians still don’t use them as much.
Age-old customs of cash payments are prevalent in many urban and rural areas to this day. In February 2021, over 549,000 new credit cards were issued. This number shows a year-on-year decline of 47% as per the data provided by the Reserve Bank of India. Nonetheless, if you are thinking of acquiring a credit card, you need to know about the advantages and disadvantages of having one.
Credit Card Pros
To some of us who use credit cards, they are indispensable. The best credit cards in India are those that suit your own spending patterns and offer value when you use them. Here are the benefits of using credit cards.
- Access to Credit – The most glaring advantage of using a credit card is the easy access to credit. Functioning on a deferred payment system, credit cards let you use them to buy products and services “now” and pay for them “afterwards”. The sum used for purchases doesn’t leave your bank account.
- Line of Credit – Offering you opportunities to build a line of credit, credit cards show banks your credit history. Banks get to view how you spend plus your repayment behaviour. Banks and financial companies (the issuers of credit cards) look at credit card use to gauge the creditworthiness of a person, in case that person wishes to take a loan.
- The Facility of EMI – One of the biggest advantages of credit cards is that they help you to make high-end/large purchases without depleting your savings. Equated monthly instalments ensure that you avoid a lump sum payment upfront.
- Offers/Rewards – Credit cards come chock-a-block with incentives and offers upon usage. You earn reward points on each purchase (redeemable towards air miles or other purchases, or pay outstanding dues). Cashback is another incentive you get as a percentage of the amount you spend (typically 5% or 10%). You can also get discounts on flight tickets, vacation packages etc.
- Convenience and Flexibility – A credit card offers you the convenience of not having to worry about sudden expenses, or carrying large amounts of cash around. Furthermore, credit cards come with a period that is free of interest. This is a period during which outstanding credit is charged at zero interest. Anywhere from 45 – 60 days, you can get free temporary credit.
- Transparency – A record of your spends is documented in your credit card statement or bill. This can be used to determine or track spending. This helps you plan a budget, and aids in filing tax returns, producing transparency in finances.
- Security and Purchase Protection – Credit cards are a secure way to pay, and have digital means to block cards if stolen or misused.
Credit Card Cons
Even the best credit cards in India come with certain disadvantages, but if you pay bills on time, there shouldn’t be an issue. Here are some disadvantages of imprudent credit card use.
- Overspending – Credit card users often get carried away, as they may spend more than they can pay bills for at the end of the credit period. Credit cards have cash limits, yet it’s tempting to continue spending.
- The Trap of Minimum Amount Due – The “minimum amount due” that shows up on your credit card bill statement deceives users into believing this is the total amount owed to the lender. This is actually the least amount the lender expects cardholders to pay. The total amount on the bill must be paid timely to avoid debt.
- Interest Rates and Fees- If dues aren’t settled by the due date, the sum is carried forward with interest charged. This interest is usually high. Besides this, there may be a high annual fee or a joining fee you have to pay.
As the pros of using a credit card are more than the cons, you may want to get a multipurpose card, such as the Bajaj Finserv RBL Bank SuperCard. With facilities like using this as a cash card with interest-free ATM withdrawals for up to 50 days, and an EMI card, you cannot lose. You can also take emergency loans for up to 3 months which come with a nominal interest rate.