All about Credit Cards

What is a credit card?

A new drive of digitisation in taking over the nation. In these times, the volume and value of trade done online and through plastic money is on the rise. Credit Card is one such instrument issued by banks and NBFCs which allows you to make purchases on credit, up to a predefined credit limit. The credit card bills are later paid on a set date, each month. It comes as a plastic card which is swiped on point of sale terminals placed at the merchant establishment (such as a shopkeeper). It is a convenient alternative for cash or cheque and makes transactions easy.
Credit cards come with different features and benefits. The most popular credit card offers include entertainment credit cards, fuel credit cards, cash-back credit cards, student credit cards, women credit cards, travel credit cards, Business credit card, and low interest credit cards, among others. Many banks also offer free credit cards to its accout holders, which do not have any joining fee or annual fee.

Credit Card Payment
Credit cards have a billing cycle, which is the period of time between billings. During the billing cycle, any purchases made by the card are recorded in your statement. Then, at the end of the billing cycle, you are billed for the same purchases. Your next billing cycle will start with whatever balance was left unpaid at the end of the previous billing cycle. The billing cycle is followed by a grace period. Suppose your billing cycle is from 5th January to 4th February, and the due date is 1st March. Any purchases that are made from 4th Feb to 1st March will be interest free. This is the grace period that is offered for credit cards in India, after which the balance will be subject to interest.
You can make online credit card payment by logging in to your net banking account.

Credit Card EMIs
These days many e-shopping sites gives you the option of buying your favourite products with Easy EMI scheme. You can go for this option if you do not have ready cash and can’t afford to make a big fat payment. Here, you have to opt for a suitable tenure for yourself which can generally go up to 24 months. The bank charges an interest on the borrowed amount but some banks also offer No Cost EMI for shorter tenure.
How does it work?
People use credit cards for the purpose of enjoying deferred payments. These payments also enjoy interest free period of 40-45 days which constitutes of your billing cycle plus grace period. But sometimes, it may not be possible to pay back within the interest holiday period, especially for a large purchase. This is where the EMI schemes come into play.
EMI schemes are issued in collaboration with a vendor or merchant
Once you opt for the EMI scheme, the bank pays to the vendor the full amount of your purchase on your behalf
Then, you can repay to your bank in easy instalments over 3 months, 6 months, 9 months, 12 months or 24 months – depending on your choice.
Banks charge an interest rate in the range of 11%-15% for providing this service, which increases the final price of the purchase for you.
Banks also charge processing fee, which is usually 0.5%-1% of the amount of your purchase.
If in future, you have enough surplus cash and wish to close Credit Card EMI loan, you will be charged prepayment penalty of 2%-3% of the outstanding balance.

Credit Card Interest Rate
The entire unpaid balance of your credit card bill attracts the applicable credit card interest rate. Along with the outstanding balance, any new spending on the card will also be subject to interest, until the entire balance has been paid off. You should always look for low interest credit cards or no interest credit cards whenever you compare credit cards. Defaulting or delaying credit card bill payments can also lead to late penalty fee on the accumulated credit card debt, besides ruining your credit score.
APR (annual percentage rate) takes into account interest rate and other charges to calculate the cost of credit. APR may differ for cards that offer different length of grace period (interest free period) on card payments. Interest fee period on different cards offered by different banks can range between 20-55 days.