Banks are issuing credit cards to their customers as well as to general public. The bank on receipt of application from individuals for credit cards, process the same and decides about issuing the cards and fixing credit limit on the basis of the creditworthiness of the customers.The credit cards are issued in the form of a revolving line of credit. That is the card holder will be allowed to operate the card to the extent of full credit limit sanctioned to him/her on clearing the previous bill outstanding.
Usage of credit cards:
Credit cards will have a separate sub-limit for cash withdrawal within the overall credit limit. Cash can be withdrawn from ATM by using the numeric password (PIN).A credit cardholder can use the card for the payment of purchase of goods and service at E-commerce (online purchase) and at merchant establishments like Malls, Shops, Hospitals, Petrol bunks and other service providers who maintain processing terminals called ‘Point of Sale (POS) for card payments. The Credit card can also be used for payment of utility bills, transferring funds to bank accounts, debit cards, and prepaid cards within the country.How to discharge credit card bills?The customers get the monthly bill from the bank for all the purchase of goods and service done by him through his credit card for a period. The customer has to pay the balance outstanding in the bill within the due date mentioned in the bill. The due date for payment will be generally fixed with the grace period of around 45 days from the bill date. However, it depends on the type of card and the card issuing bank. The card issuing bank waives interest on credit availed by the card holder, if the balance is paid in full, within the due date. On unpaid amount after due date, interest will be charged at a rate which will be normally hefty compared to interest charged on other loans. In addition to interest charged, the penalty will be levied to the defaulters. The cash withdrawn through Credit Cards attracts interest on the amount withdrawn.Credit cards can be used both domestically and internationally. The card holder has to specifically request the card issuer to enable his/her card for international use. RBI has mandated that banks may issue new debit and credit cards only for domestic usage unless international use is specifically sought by the customer. Such cards enabling international usage will have to be essentially EMV Chip and Pin enabled.
Advantage of credit cards:
1.The card holders need not worry about timings of his bank or bank holidays to withdraw the cash from ATM. ATMs provide round the clock services and card holders can draw money, at any time convenient to them.
2.In emergencies like payment to be made at the hospital or at such other exigencies, the card holders will have the same convenience of holding ready cash.
3.The card payment is error free and suitable compared to cash payments. In cash payments, there is a possibility of short payment or excess payment or difficulties in tendering exact changes at payment counters.
4.The card holders do not face the danger of inadvertently accepting counterfeit notes as it happens in cash transactions.
5.Carrying credit cards while traveling is much safer compared to carrying cash. The cash if stolen, the chance of getting back is difficult, whereas if the card is stolen the thief cannot utilize the card unless he knows the numeric password (PIN). The Cardholder can also immediately report to the card issuing bank to stop the transactions of the lost card.
6.Online booking of air tickets, railway and bus tickets, and cinema tickets or buying items under e-commerce is possible through card payments. The pleasantest thing of card payment is that one can surprise his near and dear by arranging the delivery of a Pizza or a gift at their doorstep through online card payment, while he/she is physically not available.
7.The payments of utility bills like the electric bill, telephone bill, water bill etc. can be made through online card payment which saves time and money to visit bill collection offices for cash payment.
8.Some merchant establishments or small vendors do not accept cards or they offer a discount for cash payments. In such cases, where the customers have to make payment only in cash to the vendors, the card holders need not worry as they can withdraw the cash from ATM and make the payment in cash.
9.Many a times card issuing banks offer reward points or 5% or 10% cash back offer to encourage their customers to use the cards issued by them. The card holders are thus benefited by such offers.
10. The card payment bill may be paid to the bank in installment. However, bank charges interest on payment of bill after due date.
Disadvantage: The card payment bill may be paid to the bank in installment. However, bank charges interest on payment of bill after due date.
The biggest disadvantage of credit cards is that it encourage people to spend money that they don’t have. The cash withdrawn through Credit Cards attracts interest on the amount withdrawn.