Credit cards are convenient to use, provide the benefit of moving around cashless and give you the opportunity to build a great CIBIL score if you use it judiciously. However, credit cards being unsecured are a risky proposition for banks and card users can land themselves in a debt trap if they get carried away with their credit card usage. In order to somewhat address these problem, and make life easier for credit card users as well as themselves, banks have in the recent past started offering credit cards against fixed deposits.
How does it work?
This opens up a whole new world of opportunity to people who would not otherwise be eligible for a credit card such as an individual with an annual income of Rs 2-5 lakh, a homemaker, a new employee in an organisation and the likes. If any of these individuals have a fixed deposit in any of the leading banks of the nation they are now eligible for a credit card against such fixed deposits. The deposit amount can be anything between Rs 25,000 to Rs 25 lakh and should be fixed for a minimum of 180 days. The credit card that is issued against such deposits bear a card limit of 80-85% of the deposit amount. This way banks ensure that there is a margin of safety even while offering you an attractive deal.
Even when you opt for a credit card against your fixed deposit you continue to earn interest on it, just like you would normally. However, if you happen to default on the repayment of your credit card, the amount you to owe your lender will be adjusted against your fixed deposit.
Benefits of a card against fixed deposit:
No minimum requirement of an income- Anybody and everybody who has a fixed deposit in his or her name can avail of this facility. Therefore, those who wish to have a card but do not have regular income, such as homemakers, students or the elderly can avail of this facility, so long as they maintain a fixed deposit with the lender. Earning members of the family can gift such cards to their children or parents if they wish to. Such cards provide easy liquidity and are useful to cardholders in case of an emergency.
Easy documentation and no income statement or credit history check required- The documentation unlike a regular credit card is minimal, if at all, in such cards because the customer already has a fixed deposit running with a bank. Besides, a person with no credit history or an income such as a student or a person who has just started working, or a home maker who does not have any credit lines open yet can also easily apply for such a credit card as a credit card against a fixed deposit does not require an individual to furnish an income statement. Also the banks need not run a credit check.
A longer grace period- As compared to regular credit cards that offer a grace period of 21 days to repay one’s outstanding amount free of interest, a credit card against a fixed deposit offers a significantly higher grace period of 48-55 days to repay the borrowed credit interest free.
No harassment to the card user in case of non-payment of dues- Usually banks are very strict with unsecured credit usage such as credit cards. Therefore, when a person fails to repay his dues on time, the bank might give repeated reminders to the card user or even hire the services of a recovery agent if the card user remains unreachable. In case of a credit card against a fixed deposit, there are no chances of such things happening, as the bank will simply adjust the outstanding dues against the fixed deposit. However, the card user must bear in mind that a situation like this must be avoided at all costs.
A word of caution
While credit cards against fixed deposits seem to be a win-win proposition for both the lender and the card user, those opt for such cards must still exercise caution with the usage of such cards. The thumb rule of credit card usage is spending in small amounts and repaying the outstanding amount in full in each billing cycle. There is no exception to this in the case of cards issued against fixed deposit. If you go overboard with your spending and are unable to repay your debt on time, your fixed deposit account will be impacted, thus having a direct bearing on your savings. Therefore, do remember to use your card judiciously and enjoy the benefits on offer!
Author :- http://www.moneycontrol.com/
How does it work?
This opens up a whole new world of opportunity to people who would not otherwise be eligible for a credit card such as an individual with an annual income of Rs 2-5 lakh, a homemaker, a new employee in an organisation and the likes. If any of these individuals have a fixed deposit in any of the leading banks of the nation they are now eligible for a credit card against such fixed deposits. The deposit amount can be anything between Rs 25,000 to Rs 25 lakh and should be fixed for a minimum of 180 days. The credit card that is issued against such deposits bear a card limit of 80-85% of the deposit amount. This way banks ensure that there is a margin of safety even while offering you an attractive deal.
Even when you opt for a credit card against your fixed deposit you continue to earn interest on it, just like you would normally. However, if you happen to default on the repayment of your credit card, the amount you to owe your lender will be adjusted against your fixed deposit.
Benefits of a card against fixed deposit:
No minimum requirement of an income- Anybody and everybody who has a fixed deposit in his or her name can avail of this facility. Therefore, those who wish to have a card but do not have regular income, such as homemakers, students or the elderly can avail of this facility, so long as they maintain a fixed deposit with the lender. Earning members of the family can gift such cards to their children or parents if they wish to. Such cards provide easy liquidity and are useful to cardholders in case of an emergency.
Easy documentation and no income statement or credit history check required- The documentation unlike a regular credit card is minimal, if at all, in such cards because the customer already has a fixed deposit running with a bank. Besides, a person with no credit history or an income such as a student or a person who has just started working, or a home maker who does not have any credit lines open yet can also easily apply for such a credit card as a credit card against a fixed deposit does not require an individual to furnish an income statement. Also the banks need not run a credit check.
A longer grace period- As compared to regular credit cards that offer a grace period of 21 days to repay one’s outstanding amount free of interest, a credit card against a fixed deposit offers a significantly higher grace period of 48-55 days to repay the borrowed credit interest free.
No harassment to the card user in case of non-payment of dues- Usually banks are very strict with unsecured credit usage such as credit cards. Therefore, when a person fails to repay his dues on time, the bank might give repeated reminders to the card user or even hire the services of a recovery agent if the card user remains unreachable. In case of a credit card against a fixed deposit, there are no chances of such things happening, as the bank will simply adjust the outstanding dues against the fixed deposit. However, the card user must bear in mind that a situation like this must be avoided at all costs.
A word of caution
While credit cards against fixed deposits seem to be a win-win proposition for both the lender and the card user, those opt for such cards must still exercise caution with the usage of such cards. The thumb rule of credit card usage is spending in small amounts and repaying the outstanding amount in full in each billing cycle. There is no exception to this in the case of cards issued against fixed deposit. If you go overboard with your spending and are unable to repay your debt on time, your fixed deposit account will be impacted, thus having a direct bearing on your savings. Therefore, do remember to use your card judiciously and enjoy the benefits on offer!
Author :- http://www.moneycontrol.com/
Reposted By :- http://credit4loan.com/
No comments:
Post a Comment