Demonetization has bought enormous changes in our lifestyle. These days when kids use “cards” as their slang language to fulfill their needs. It is also because they watch us using plastic money to pay for the goods and services whether it’s buying a meal from Mc Donald’s or an International Tour. The plastic money has been a buzz word for quite some time and even our government is encouraging to use more of plastic money. Below is the basic understanding on the plastic money.
In general, two types of cards are used that i.e. Debit & Credit Card that can help us to take our financial decisions wisely.
A debit card is issued by the banks that basically work directly from your account where we have to be ensured that the running balance should not go below the minimum amount. For the security reasons we need a PIN to use it at the stores as well as ATM’s. The card can also be swiped without PIN where the receipt has to be duly signed by the card holder. But for the extended security reasons issuer companies provide modernized cards with PIN verification.
A Credit Card issued by a financial institution allows us to borrow the pre approved money to make our purchases. It has a decided amount or the credit limit which can be borrowed during a given period. The amount or the credit limit is pre agreed as per the terms & conditions by the card issuer financial institution and the card holder based on the credit rating and the history.
Whenever the card is swiped by the card holder, the individual actually authorizes the card issuer company to pay the merchant on its behalf. The borrowed money has to be repaid the within the ‘grace period’ of 25-30 days otherwise the borrowed amount and certain agreed charges has to be paid. It is also safe to carry the card instead carrying cash or a cheque book to make payments and other transactions. As credit cards offers insurance on purchases and other facilities it is little easier to request a refund. It allows the consumer to continue with the debts, subject to the basic amount being paid. It involves a third party operational body that pays to the seller and the amount is being reimbursed by the buyer on a later date.
According to laws the merchant has to verify the identity of the card holder and the rightful user by obtaining proper identification through PIN (Personal Identification No) or any other valid Govt. issued document. Payments by Credit Card are easily accepted by the merchants as the payments are received at the same time despite the seller has to pay the card processing fee for every transaction made.
The card holder has to pay the used amount on a monthly basis to the full. In case of nonpayment of the complete amount the interest is added by the issuer on the balance amount and the interest is compounded as long as the balance is outstanding.
Several methods are used by the card issuers to calculate the rate of interest. As the cards have pre defined credit limit it also affects the rate of interest paid by the card holder. It also influences the credit rating as well as the credit history of the card holder. Interest rates can also be raised in some cases without maintaining any federal limit by the issuer. Certain extra charges like going over Credit Card, late payment, cash advances or foreign – currency conversion are being charged by some credit card issuers. Interest rates on Credit cards as compared to other loans are higher which at times lead to underestimated time and money to pay off the outstanding balance especially when the minimum amount to be paid is low and interest is high.
It is not only important to use the credit card with a restraint or self control but also take preventive measures to assure the privacy and identity against the identity thieves. It allows the card holders to avoid carrying cash as well as accumulating “rewards” which can be used worldwide.
To differ from the debit cards, cash cards or the charge cards credit cards have Bank Card Number embossed on it. The card number or the Bank Identification Number is prefixed with the series of numbers that determines the Bank (first 6 digits of the Visa or the Master card), next nine digits and the final digit represents the individual account number and the validity check code respectively. Credit Card or we can say the modernized cards have a magnetic stripe or the chip embedded as a security feature. Along with the card number it also carries the issuance and the expiry dates as well as the security codes. All credit cards differ as they do not use the same set of codes or the same series of digits.
Using a debit card is always a positive approach that prevents from the trap call of credit cards. Using a card directly connected to your account is a better decision financially.
Credit cards same as debit cards allows us to avoid carrying huge sheaf of notes or the pile of cheque books. It offer us to make a huge amount transactions at one go whether it’s paying a hefty bill for the bash or a down payment for the brand new car
The Card statement helps us to maintain the budgeting easier. Maintaining the repayment of the outstanding amount and the deadline dates improves the credit score which in later helps a lot for securing a good amount in an unwanted situation. Credit cards allows to rotate money in a smarter way but only precautionary measure is to be kept in mind is the repayment of the amount on time to avoid the clinch of the compounded interest.
Certain Banks or Financial Institutions club their cards to increase the credibility of the brand and provide additional benefits to the customers. In a bid to capture a target customer FI’s tie ups with many corporate organizations, e commerce entities, airport lounges FI’s try to expand their customer base in a fairly competitive market. Banks or FI’s keep a track of the customer’s spending pattern and accordingly offer them the cards according to their needs.
There are cards such as American Express & Diners that are issued by them. Their issuance and processing of payments works on their own network. This gives a benefit of saving from any legal issues or any dispute handling. This leads to higher transaction charges paid by the merchants keeping it as a primary source of income. These days Amex & Diners are incorporated with banks to issue co-branded cards to increase the number of its customers. At times, an offer also gets indulged with restaurants globally. Benefits of such cards include higher reward points & cash backs, airport lounges access, buyers protection and yes last but not the least it serves as a Status Symbol as it is generally HNI clients with income more than 8L.
The major constraints with both debit and credit cards are the security and the risks involved. To be preventive make sure the information should not be compromised else the issuer has to be contacted to control the frauds. While monitoring the credit reports additional preventive measures assures the identity to be safe. Monthly statements have to be monitored regularly to identify the charges. Issuers restrict the time limit to report the fraudulent charges on the account. In case of unauthorized transactions or the theft of the card the issuer freezes the account and issue a new card to the card holder.
Caution: All disclosure documents has to be read carefully while applying and signing any document related to credit cards to understand the benefits and to avoid any unpleasant surprises that may occur while closing the card account.