Credit Cards: Pros and Cons
As we are heading towards cashless transactions, we are looking for new methods of payment every day like debit cards, credit cards, Google Pay, BHIM, Paytm, etc. We want to explore these cashless and most importantly contactless payment methods which are kind of online and offline. So, one such payment mode is credit cards. People are fascinated with credit cards and why would not because we don’t need to pay the full amount from our bank account, it is instant, cashless, and contactless too. But every coin has two sides, so let’s explore what are these two sides of Credit Card as well…
Pros:-
1. Easy access to credit:
One of the biggest and most advantages of credit cards is their easy access to credit. It works as a deferred payment method so by using a credit card we can buy now and pay later through EMI without losing out on our savings. The money directly is not cut out from our bank account and so there is a hole in our bank balance as well.
2. Credit Building:
Due to our track record of borrowing money and paying it back through our credit history, lender instantly gets to own our history of credit and our good credit record so, we get exciting offers and wards and our credit building is in the loop. Also, good credit can help us achieve our financial goals and have decent living standards to maintain and live long.
3. EMI facility:
If we plan to buy some big goods and if we pay through credit card, we can choose through easy equated monthly instalments without taking a personal loan or borrowing from someone. So easy EMI facility can be a reason to have a credit card.
4. Flexible credit:
One of the exciting facilities of credit cards is it comes with an interest-free period of 40-60 days where you can buy goods without any interest rate on a purchase.
5. Purchase Protection:
Credit Cards offer additional protection in the form of insurance for card purchases that might be damaged, lost, or stolen. This insurance helps to claim the credit card statement and for a new card in minimum amount.
Cons:-
1. Minimum due Trap:
One of the biggest drawbacks of having a credit card is the minimum due amount that is displayed at the top of the billing statement.
2. Excessive Charges:
Credit Card has many hidden charges and costs to be pay at the opening and for the continuation of the services. These fees include process fees, tax on each transaction, joining fees, renewal fees, and late payment fees.
3. Overuse:
With our bank balance staying the same with our revolving credit, it might be tempting to put all our purchases on our card which is we are unaware of. It leads to overspending and owing more than what we can pay back.
4. High-Interest Rate:
If our dues are not clear by billing dates, the amount is carried forward and the interest rate is charged on it. Interest rates on credit cards are very high with an average amount of 3% to 36% per annum.
There are mainly two types of credit cards advised by RBI, General Purpose Cards and Private Label Cards. The former are issued under the trademark of credit card associations (VISA and Mastercard) and accepted by many merchants while the latter are only accepted by specific retailers (e.g. a departmental store).
RBI has issued some guidelines for the protection of Customers.
Right to privacy
Unsolicited cards should not be issued and unsolicited loans or other credit facilities should not be available to credit cardholders. The card issuing bank/NBFC should not unilaterally upgrade credit cards and enhance credit limits.
2. Consumers’ Confidentiality
3. Fair Practices in Debt Collections.
“If you are carrying a balance because you think it helps your credit score- STOP…”