If you have a credit card then there are some concepts and terms related to using these cards that you must familiarize yourself if. Better knowledge of these will have you save money, especially if you are a regular user of your credit card.
If you are not an active user of credit cards, then the most basic or regular card will do for you. These entry levels cards do not charge any fee. In fact, given the competition in the Indian market, most of the basic cards don’t charge annual fees. Nevertheless, some cards are marketed in a very savvy manner, such that they tempt with you some catchy benefits, and you get entrapped into paying an annual fee just to avail of those benefits.
If you are spending in excess of your credit limit, the transaction might get rejected, causing you inconvenience. If the transaction does go through, you might be charged a penalty.
The credit limit is influenced by your income, repayment capacity and by your age as well. For instance, Shyam who is 23 years old just started working recently, and was approved for a monthly credit limit of Rs 10,000. If he were still in college and had no income, its likely that he might not have even been eligible for a credit card. On the other hand, Shyam’s 51 year-old father who is a senior manager at an MNCalso applied for a card from the same issuer but was sanctioned a limit of Rs 1 lakh. The issuer is unsure of Shyam’s repayment capacity for a higher amount of credit, so has capped his limit at Rs 10,000. Over time, as Shyam’s career progresses and his income rises, and as long as Shyam is disciplined about paying his dues on time and in full, then he can expect that his limit will also be increased.
You will be charged an interest on the cash amount that you withdraw using your credit card. This will start accumulating from the day of withdrawal itself till the day you pay back the amount in full. You might also be levied a transaction fee. Use the cash withdrawal facility on your credit card only if you have no other option of getting cash.
At the time of signing the credit card contract agreement with your card issuer, the issuer will inform you about the rate. However, the issuer can unilaterally change the rate at a later date, but only after informing you about the rate change. Typical monthly rates of interest charged on outstanding balances are 3% - 5%. As a result, the APR works out to be higher than 36% (12 months x 3% interest = 36%).
The longer that you have an outstanding balance, the higher the actual interest that you will end up paying. So don’t just pay the minimum balance, but pay off your dues on time and in full.
Don’t think that when you spend on a credit card, the sky is the limit and you don’t have to pay it back because you can always close the card or move addresses where no one will be able to trace you. Your PAN card is used to identify your records, and if you have defaulted or acquired a bad credit history, it will be very difficult for you to get a car or home loan, or a credit from another issuer.