India is primarily known as a debit-based market, where alternative payment systems take some time to establish itself. However, a stark contrast to this unique pattern is credit cards. After its introduction to India’s financial market in 1981, credit cards have gradually become one of the most sought-after alternate modes of payment in the nation.
Studies conducted by various independent groups show that the total amount of transactions via credit cards reached almost Rs.59,500 crore in September 2019, considering payments made through POS terminals only. Other credit card debt, such as credit card loans, add a substantial amount over that sum. In total, this accounts for almost 29% increase within a 12-month period, showing the demand and acceptance of this payment method.
Such substantial growth in usage is largely thanks to the convenience these cards have to offer. A prospective customer can easily choose the right credit card for themselves and enjoy its benefits.
Features offered with a credit card
Financial institutions regularly offer newer features and benefits with their credit cards to entice new customers. These can range from an attractive rate of interest to the facility to avail a credit card loan that can prove useful during emergency situations.
Loan against credit cards is a short-term, unsecured advance which is issued against a particular card’s pre-approved credit limit. It is useful in times of urgent financial requirements as it offers access to a lump sum amount without any additional paperwork.
Almost every credit card issuer allows its customers to avail of such loans. However, cardholders should carefully consider the details of such credits before availing one to bridge their monetary requirements. It will also help them choose the right credit card for their everyday use.
Here are few facts about credit card loans that every cardholder should know about.
- The loan amount is determined based on credit limit –
The disbursed loan amount of an advance against credit cards is usually calculated as a percentage of the total sanctioned credit limit. This allows customers to draw a substantial amount as a loan.
Depending on a particular financial institution, the sanctioned amount can reach as much as 80% of a customer’s pre-approved credit limit. Instant access to such a large sum is one of the primary reasons to opt for a loan on credit cards.
- Zero additional documentation required –
Most financial institutions require only minimum to nil additional documentation to avail a credit card loan. As a borrower is already an existing customer of the organization, he or she will have to go through minimum documentation to apply and seek the loan.
Also, short-term unsecured credits usually require the payment of various fees and charges during the application and approval procedure. These payments are not necessary for a loan against credit cards.
Credit cards like the Bajaj Finserv RBL Bank SuperCard only charge a flat processing fee of 2.5% for against such advances and no interest for up to 90 days.
- Applicable interest is kept at an affordable amount –
Credit card loan usually attracts affordable rates of interest, which helps clear the debt within the repayment tenor. Reputed financial institutions even offer 3 months of interest-free period, which offers liquidity during an emergency.
- Provision to prepay the credit –
Borrowers can prepay their loans against credit cards whenever they want. It allows an individual to stay ahead of their debt and interest payment. However, prepayment might be subjected to certain pre-closure charges, as determined by the credit card issuer.
- Defaults are considered as loan defaults –
Defaulting a loan against credit card will be considered as a loan default, rather than a credit card default. It is one of the most crucial aspects a borrower should keep in mind while availing such credit, as such an incident will impact their credit score by a significant margin.
- Flexible repayment tenor –
Most financial institutions allow borrowers to select a repayment tenor to repay their debt. It is a major advantage of such a loan, as a credit card holder can pay the outstanding amount over convenient EMIs, instead of repaying the total amount altogether.
A credit card loan is a convenient way of accessing a substantial sum, not requiring lengthy application process, verification, and similar formalities. Borrowers can benefit significantly by keeping the above-mentioned facts in mind and carefully going through the terms and conditions imposed by the lender.