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Should You Take Credit Card Against Fixed Deposit?

IndianMoney.com Research Team | Posted On Saturday, January 18,2020, 05:55 PM

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Should You Take Credit Card Against Fixed Deposit?

 

 

Credit cards offer instant purchasing power. Today, banks offer credit cards against fixed deposits (FD). This is an attractive option for those who have no credit history or a poor credit score.

Unlike normal credit cards, which consider monthly income, credit score and many other factors, credit card against FD has none of this. All it requires is an FD with the issuing bank for a minimum value. The minimum amount varies across banks. It is called a secured credit card, because the fixed deposit serves as collateral for the credit card.

Credit card limit is usually decided by the bank. But in this case, your credit card limit is directly linked to your fixed deposit. Most banks provide 75% to 85% of FD as card limit.

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Should You Take Credit Card Against Fixed Deposit?​

Why Should You Avail a Credit Card Against Fixed Deposit?

Because of convenience and instant credit facility, people tend to purchase credit cards. However, the banks check a number of criteria before approving the request. These are:

  • Monthly income (amount, source of income)
  • Credit score
  • Credit history
  • Location
  • Credit utilization ratio/existing debts

Now, if a person has no credit history or a poor credit score, he will find it difficult to get a credit card. In such cases, you can apply for secured credit cards. It is like borrowing your own money from the bank. There is no need to submit any income proof. Neither your credit history nor score is considered.

See Also: Check Credit Score Online

Given below are the features of a credit card against fixed deposit:

  • Minimum Documentation: You are not required to submit many documents.
  • Affordable FD Amount: Banks require a minimum FD value to approve credit card against it. This is usually an affordable amount ranging from Rs 10,000 to Rs 20,000 making it affordable for retired people, homemakers and so on.
  • Credit Limit: Credit Card limit depends on the FD amount. Banks generally offer 75-85% of the FD amount as a card limit.
  • Tenure: The FD tenure that you are declaring as security must be for a minimum of 6 months.
  • Promo Rate: Secured credit cards provide a 0% promo (promotional) rate of interest for the initial days. This can range from 48-55 days.
  • Interest on FD: Credit cardholders continue to earn interest on FD.
  • Rewards: These credit cards offer rewards like cashback, access to airport lounges and so on to cardholders.
  • The Interest Rate Charged: Interest rates charged on secured credit cards are much lower than their traditional counterparts. FD serves as security thereby reducing the interest rate. It is usually 28% to 30%. In the case of unsecured credit cards, the interest rate ranges from 36% to 42%.
  • As all the features of a secured credit card are discussed above, we cannot miss out on the most important criteria. If you fail to make timely repayments on your outstanding dues, the bank has the right to take over the fixed deposit. This, in turn, can affect your credit score. It can also lead to the loss of the asset.

See Also: Credit Score India

Why Secured Cards are Better Than Unsecured Cards?

Credit cards can get you into a debt trap real fast. Delaying timely payments increases the outstanding dues. This affects credit score, creating an impact on your future credit transactions or approvals. Although this risk is attached to every credit card irrespective of whether it is secured or unsecured, secured credit cards have an edge over unsecured cards for the following reasons:

  • The interest rate on credit cards is high. Comparing secured and unsecured credit cards, there is a significant difference in the interest charged. So, it is economical to own a secured credit card.
  • As the card is issued against your own FD, the chances of overspending are low.
  • Multiple rewards can be effectively utilized.
  • The credit card limit will depend on FD amount. If you have a higher deposit, your credit card limit will also be higher. The credit limit is not decided by the bank as in the case of unsecured cards. This gives more flexibility.
  • Secured credit cards involve less documentation, thereby less processing time.
  • The minimum FD amount required for the approval of a credit card is Rs 10,000. This makes it a feasible option. In the case of unsecured credit cards, you must meet a number of criteria to be eligible(credit score, credit history and so on)
  • Annual fees are rarely charged on secured credit cards. Some banks might charge a very low annual fee.
  • Interest on FD account will continue to grow along with the credit card usage.

See Also: Different Types Of Credit Cards

Conclusion

Although the advantages of secured credit cards over unsecured cards are mentioned above, it is not necessary for everyone who is applying for a credit card to apply for a secured card. Both types of credit facilities are designed to cater to different requirements. Make sure you review your requirements and eligibility before opting for one.

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