Gone are the days when only the people of wealth owned credit cards because the Indian credit card industry can grow at a CAGR of more than 25% during 2020 - 2025. The reason for rising popularity is the ease of purchasing products first and paying later. As is indicated by its definition, a credit card authorizes the holder to buy goods or services on credit from a financial institution.
The bank you approach for the credit card will decide the credit limit and the subsequent interest rates depending on your credit rating, and the payment cycle starts one month after purchase. Going further, you will find the pros and cons of this little slice of electronic cash.
Advantages of Credit Cards
- Convenient big-ticket purchases - From costly electronics or jewellery to sudden, expensive events like weddings or medical emergencies, you can rely on credit cards to access easy cash and then pay it back with manageable EMI's.
- Lucrative deals, cashback, and rewards - Some of the most sought-after credit card benefits are exclusive discounts, money backs, and other fruitful reward points that you can cash-in later.
- Free credit for a limited period - While the interest on personal loans start charging directly after the money gets issued, credit cards come with interest-free periods on purchases. You will receive 49-51 days of a credit-free period to enjoy your shopping without worrying.
- Raise in credit score - Re-paying credit card bills on time is a sure-shot way of raising a low CIBIL score. You can check your credit score through Fit.Credit before and after using a credit card and the payment of your monthly bills to know the difference.
- ATM cash withdrawal with 0% interest - This means you can easily avail cash during an emergency or need with up to 50 days of interest-free duration. Indeed a great deal, isn't it?
- Purchase protection - Each purchase completed using a credit card gets insured against loss, damage, or stealing. You can use your credit card statement as proof for a claim.
Disadvantages of Credit Card
- High-interest rates - With the average interest rate being 3% per month, amounting to 36% per annum, the high-interest rate is an aspect that you need to consider before using a credit card.
- Debt traps - The habit of buying first and paying later could become a vicious loop of unending debt and rising interest rates if you fail to pay your bills on time.
- Late payment charges and fee - While the credit period is manageable, even a single day delay in repayment can incur a late fee and additional charges. You will have to keep track of your bill due date.
When you sign up for good, you need to consider the unpleasant aspects too. View a credit card as a medium to achieve a bit of convenience and luxury but ensure to use it responsibly else you might end up ruining your credit score. As a general rule, pay your credit card bills on time and enjoy the benefits!
Author Bio:
Mihika Ghosh
A finance enthusiast, Mihika Ghosh, works as a Digital Content Creator at Fit.Credit, an all-in-one app that helps you check your credit score for free, stores your financial documents, and gives you timely payment reminders. She creates content that educates people on how they can improve their credit scores along with other investment and finance-related topics. When she is not working, she loves to travel and read to keep up with all things finance and economics.