It
took a while for Indians to get used to the cashless economy, but the prompt of
demonetization helped the Indian economy and society to explore digital payment
and transactions. Though debit cards/ATM cards were already in circulation,
their use was somewhat limited. Nonetheless, with the Reserve Bank of India
strongly rooting for digitization and transparency in currency transactions,
both within India and with Indian connections abroad, India had no choice but
to embrace the western trend of paying with plastic. Credit cards come with
many rewards to tempt users to enable their use. They are tied with rewards,
and not just general discounts when you shop at retail outlets, but with cashback
features anywhere between 5 to 15% when you buy big-ticket items like a
refrigerator or a washing machine.
You
can also avail of low-interest rates on loans when you use your credit card to
buy items on EMIs. Credit cards come with costs too, not least high annual fees
and joining fees. You can use your credit card as an ATM or cash card as well,
but you will be charged for the transaction, called a credit card
cash advance fee.
This can be anywhere between 2%-3% of the amount of the transaction, and the
minimum amount may be set as high as 500 INR on some premium credit cards.
Credit cards used for retail
The
Reserve Bank of India has stated that most people in India, in 2019, used
credit cards in the retail segments, like buying groceries and paying utility
bills. It's a convenient way to pay, even for things of daily use, such as
household items. The growth in the number of outstanding credit cards in the
period between February 2018 and February 2019 was at 25%. In the same time
span, transactions at ATMs, using credit cards, increased by 15%. Many people
in India mistakenly believe that the amount of cash withdrawn can be repaid in
the interest-free credit period. This, however, isn’t true.
The interest levied at ATMs
Depending
on credit card
types, interest levied ranges from card to card.
When you withdraw cash at an ATM by using your credit card, even if it's the
most basic type of card, you will not get an interest-free window of around 45
days like you do when you use it to purchase goods at merchant outlets, not on
most cards anyway. Instead, you will be charged interest right from the moment
you make the withdrawal at the ATM. Cash withdrawals with your credit card
don’t yield any reward points as you would get at a retail outlet.
The
amount you may withdraw at an ATM with your credit card will be capped at a
limit of a percentage of your credit card limit. Entry-level cards that people
get issued for daily expenses may have cash withdrawal limits of 10%. Premium
cards usually have a limit of 30%. Still, people continue to use their credit
cards to withdraw cash. In June 2020, after the lockdown was nearly halfway
through, people used credit cards and debit cards to withdraw cash from ATMs to
the tune of Rs. 1 lakh crore.
Cards for everyday living
Credit card types are plenty. You should choose
one that is the right fit for you. Average salaried people want to use credit
cards for regular purchases, and the odd appliance on sale. They don’t have
high-end demands, so a credit card that they can use to pay their daily
expenses suffices. The best credit cards for this kind of use would be the
cards that banks like SBI offer (SBI Simply Click), or by finance companies
like Bajaj Finserv, which offers co-branded credit cards. HDFC Bank’s Regalia
First is also a good pick. ICICI Amazon Pay Card is great for online shopping
on Amazon, and you get everything on the e-commerce portal to meet your daily
needs.
