Credit Cards in India

In India during the last 2–3 years there had been a phenomenal growth in credit card dealings as well as number of users of credit cards. Introduction of credit card facility by a number of banks and acceptability of the credit cards at a number of places are the two major reasons for the sudden spurt in credit card business. Now the Indian public has accepted usage of credit card as a way of their financial dealings and credit card is no more a rare option or a luxury. The credit card business has been identified as a catalyst for the growth of the country’s economy. It is estimated that there are not less than 30 million credit card holders in India.

Credit Card or Cash
It is impossible to identify credit card or cash as the better option between the two. Both have advantages as well as disadvantages. One can select either credit card or cash depending on his income as well as the nature of his cash dealings. The main advantage of credit card is that one need not carry a huge amount of cash especially during long travel. It is much easier to carry a credit card than carrying cash. However credit card is vulnerable to cyber thefts that may cause heavy loss of cash. Also, if the credit card is lost or misplaced that may lead to misuse and the owner of the card may have to suffer substantial monetary loss.
Those who have a fixed monthly income and have to follow a strict budget every month in order to honor their commitments with their monthly income may prefer to have cash dealings so that they will have full control over their spending. Credit card users often spend beyond their limits. Use of credit card is not advisable for those who cannot plan their expenses and also who are unable to control their spending.

Loans and Credit Cards
Just like cash dealings and use of credit cards there are various pros and cons to be considered before availing loans or credit card facility. One has to closely analyze the disadvantages and advantages of both the facilities and must identify the best option. For all types of loans the rate of interest will be fixed and the interest may have to be paid every month. For credit card, the rate of interest is generally low. However, at times, the rate of interest will be hiked especially when there is cash advancement. In order to avail loans one has to follow a long and cumbersome procedure whereas the procedure pertaining to credit card is easy and simple. For credit cards, when there is default in payment, the rate of interest will be much higher. The terms for repayment of loans are flexible and are based on the requirement and repayment capacity of the borrower.

Interest Rates on Credit Cards
Prime Lending Rate, Repo rate and Reverse Repo rate are the three factors that affect the interest rates of credit cards in India. The lending rate of RBI to the various banks in the country is known as Repo rate. According to the fluctuations in the Repo rate the banks will revise the rate of interest for credit cards. The rate of interest fixed by RBI for borrowing money from the banks is the reverse repo rate. Banks will have surplus funds when there is higher reverse repo rate and as a result the rate of interest for credit cards will be lower. The Prime Lending Rate is also a decisive factor for the banks to fix the rate of interest for their various services.

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