Today India’s payment industry has a lot to offer and a consumer can avail numerous benefits. Although there exists a variety of digital payment apps and many modes of cashless payments, credit card still remains one of the most favored options.
Do you need a credit card?
Before I get on with the best selection of credit card for you, I want you to hold your horses and cogitate on whether you need a credit card. A credit card provides a safety net in case you face a short term budget crunch. If you make international transactions frequently, travel around a lot then having a credit card is extremely essential. Yet another reason to get a credit card is to start building a credit history. Without a track record to go on, you’ll be seen as a higher risk when it comes time to take out a car or home loan.
How does a credit card work?
Now let me get down to the functioning of a credit card. When you opt for a credit card, you are taking money on credit from the issuer. It’s quite similar like a loan, on which you may have to pay interest. However, this is applicable only if you don’t pay the entire bill that you have received. If you leave some amount pending, you will be charged interest on it. Your interest rate is calculated as an Annual Percentage Rate (APR) and Monthly Percentage Rate (MPR). Let me provide you with an example for better understanding.
Suppose you fail to pay a due of Rs. 20,000. The interest you have to pay per day in addition to the principal is: 20000 x (3% x 12 /365) = Rs. 19.73. Here I have assumed 3% as a typical monthly interest. Yearly rate of interest of the borrowing is going be 3% x 12 = 36%. Now daily interest will come to 3% x 12/365 = 0.098%. So, your total interest payable per day is going to be amount due x daily interest. Amount due is the total principal outstanding. In addition to this 18% GST is levied on the interest amount and the late payment fees also attract GST. When you make a purchase with a credit card, interest will apply only after the due date. Usually the due date is 3-4 weeks later from the purchase date depending on the card.
What’s best for you?
Till this point you must have formed an idea of the need for a credit card and how it operates. Now let’s come to the selection of credit card. While each credit card comes with its own set of unique benefits, you must choose a card tailored to your specific needs and usage patterns.
If you aim to use the card primarily for shopping, then you should choose a card with the best reward programs and a high credit limit.
If you’re aiming to build your credit score and pay the bill in full every month, then it is advisable to choose a credit card with no annual fees and a generous grace period.
If you aim to use your credit card in the case of emergencies only, then it is advisable to go for a no-frills credit card with a low-interest rate and low fees and charges.
You must focus on your spending habits while selecting for the best credit card.
You must look out for the additional fees and charges. Additional fees and charges, apart from any applicable interest, may be levied directly or indirectly. Some of these fees and charges would include a joining fee and an annual fee. Joining fees: The joining fee for the premium and super-premium credit card categories will generally be on the higher side. Certain cards come with no applicable joining fees. However, it is likely that such cards would come with other restrictions.
Annual fees: While an annual fee may not be levied in the first year of credit card purchase, it will likely be levied from the second year onwards. Annual fees generally range from Rs 100 to Rs 8,000. Cards bearing the ‘LTF’ or ‘Lifetime Free’ sign will not levy any annual fees. One should keep an eye out for such cards.
Credit cards issuers also offer reward points on each spend. As appealing as it may sound but these rewards are generally offered on certain items and are subjected to limitations. This means that reward points can only be redeemed in a certain way, where you’ve to purchase certain items above certain costs in certain stores. You must choose a credit card where reward points must be redeemable against card balance also it must be cumulative and should not expire soon.
Make the most out of discounts, cash backs and lounge access. Credit cards offer discounts on garments, electronics and restaurants. Also at many times they offer free lounge access at airports, it works for the best for those who often need to take personal flights. These are subjected to certain terms and conditions. So the idea is to focus on tangible benefits that actually make you spend less. A discount has to be direct and reflect on the bill. The cash back has to reflect on the credit limit. These are some of the real benefits that will help you minimize the total bill. A credit limit is also one of the most important factors to look for when selecting the credit card. Your spending habits would generally determine the credit limit applicable to you. One should also make it a point to understand the penalty charges that comes with overstepping your credit limit. Impulsive buying or being a spendthrift can cause a huge burden on your current savings. The credit card is a boon if used properly otherwise it can become a huge burden on your shoulders if the dues are not paid timely. My suggestion is to always keep in mind that your credit card bill must not overweigh your pocket’s current savings.
Thus, there exists a variety of credit cards, each with their own set of perks. One should select what works best for their individual needs, keeping in mind the above parameters.
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