Last year, it was reported that in April 2020, there were 57.1 million credit cards in circulation, along with 829.4 million debit cards in the country. While the disparity may seem striking at the outset, it wasn’t long ago that Indians mostly preferred debit cards. According to the numbers provided by the Reserve Bank of India, in December 2015, there were only 22.74 million credit cards in operation, while the number of debit cards was 643.19 million. This shows that the number of credit cards has more than doubled in less than 5 years, which highlights the proliferation of credit cards in the country.
There are multiple reasons for this shift in the consumer mindset. Today, banks and financial institutions have made it easier to get access to a credit card. On the basis of one’s credit score, it is possible for an individual to receive a pre-approved offer for a credit card. Additionally, given the fact that credit cards today come with multiple features and benefits, working professionals aren’t as averse to owning a credit card, and want to make the most of the discounts and reward points on offer.
Another benefit of owning a credit card is the possibility of withdrawing cash from an ATM machine. If you own a debit card, you can only withdraw cash if you have sufficient funds in your bank account. However, with a credit card, you can withdraw a certain percentage (usually between 20 – 40 percent) of the cash limit. This gives you greater access to funds during liquidity crunches or emergencies. That said, it is extremely important that you are wary of additional charges that come with withdrawing money by using your credit card.
List of cons
Additional charges
It goes without saying that withdrawing money from an ATM by using a credit card attracts certain charges, such as cash advance fees, interest, and finance charges. The cash advance fee typically ranges from 2.5% to 3.5% of the transaction amount, depending on the financial institution. It is also subject to a minimum amount, which is usually between Rs. 250 to Rs. 500.
Furthermore, credit card cash withdrawals also attract finance charges, which are levied from the date of the withdrawal, until the date of repayment. Interest is also charged, which usually ranges from 2.5% to 3.5% per month. Last but not least, in the event that you do not repay the entire amount, a late payment fee is also levied on the outstanding balance, which could be as high as 30%!
Future impact on your credit score
Having a good credit score is extremely important. Not only does it better your chances of owning a new credit card, but it will inevitably be the one metric that could decide your fate when you apply for a loan. As such, taking a cash advance, and the charges associated with the withdrawal could easily pile on your monthly payments. In the event that you are unable to make the payment (minimum amount due), it will negatively impact your credit score.
List of pros
Greater ease
Considering the fact that most of us prefer carrying just one card, credit cards can be used instead of debit cards for cash withdrawals.
Easier access to funds
Last year was an eye-opener for most of us. The Coronavirus pandemic resulted in the majority of Indians facing a liquidity crunch, as they couldn’t get to work. Furthermore, a significant number of people also lost their jobs. At such trying times, when you require immediate access to funds, you can withdraw the amount that you need with your credit card. The process is easy; credit cards can be used as an ATM card or a debit card, and there is no additional documentation involved.
You can also look at innovative offerings in the credit card space. For instance, the Bajaj Finserv RBL Bank SuperCard comes with the power of four cards in one. The difference is, you can use the credit card for ATM withdrawals at no additional charge for up to 50 days. You can also use it as an EMI card if you want to pay for products you purchase in easy EMIs.