Credit Cards against Fixed Deposits are an excellent tool of mending a bad credit history and building up your credit score. Generally, Credit Cards are issued as an unsecured product to people who meet eligibility criteria such as income levels, credit scores, and income stability. These are Unsecured Credit Cards and do not require any kind of security by the person to whom the card is issued. However, some individuals need Credit Cards but are unable to get them because they fail to meet the eligibility criterion established by the banks.
Credit Cards against Fixed Deposits are ideal for people who have liquid money but do not meet the pre-established parameters for Unsecured Credit Cards. Herein, the Fixed Deposit acts like collateral security, and the card limit is assessed as per the deposit value.
Various banks offer Credit Cards against fixed deposits. All these banks have their specialised products with different norms. Card Limit, tenure, and rate of repayment are a few factors which vary depending on the card issuer or bank from which Credit Card is sought.
Some of the leading Secured Cards in the market are:
Type of deposit, amount of fixed deposit, tenure of deposit, forfeiture clauses, repayment norms are a few considerations which are decided before issuance of Credit Card against Fixed Deposit.
You can apply for Credit Card by opening a fresh Fixed Deposit or against a pre-existing Fixed Deposit. Industry majors like SBI Card issued Credit Cards to individuals irrespective of the bank with which the Fixed Deposit is held.
Credit cards against Fixed Deposits are most suitable to people:
With an inability to furnish an income record. This includes retired people and homemakers.
With the inability to furnish Income Tax Returns.
With the inability to meet the minimum income criteria.
With residence in locations which have been blacklisted by the lender.
With employment in organisations which have been blacklisted by lenders.
Being secured cards from your bank, issuance of Credit Card will generally require very little paperwork.
Purchases made using the Credit Card are like short term loans and need to be repaid as per the repayment cycle pre-set by the bank. Credit cycles generally vary from 20 to 50 days for Secured/Unsecured Credit Cards.
Banks do not charge any interest on card spends if repayment schedule is adhered to. These borrowed sums may, however, be subject to pre-decided interest rates if Credit Card payments are not made within due timelines.
Amounts utilised by using such Credit Cards mark a lien on the Fixed Deposit. Credit limits may vary depending on the banks by whom cards are issued, but credit limits are generally restricted to 85%to 90% of the Fixed Deposit amount.
Credit cards against fixed deposits are a unique and effective tool for improving one’s credit score. Regular payment of outstanding Credit Card bills can efficiently strengthen your credit score and credit history.
All types of Fixed Deposits are eligible for issuance of Credit Cards. That is to say, Traditional Fixed Deposits on which interest is paid out at regular intervals, as well as Cumulative Fixed Deposits on which interest accumulates and is reinvested, are eligible.
Interest accumulation and pay-out are not impacted because of the lien created by the issuance of a secured credit card. The customer continues to enjoy interest at the same rate at which they had been enjoying before issuance of Credit Card against Fixed Deposit.
There are certain cards which have a clause regarding the erosion of Fixed Deposit amount for repayment of dues of Credit Card if the borrower fails to clear the dues in time. These cards may or may not have an additional element of Joining Fees, Annual Fees, and Financial Charges.
Interest rates applicable to amounts outstanding against secured Credit Cards are much lower compared to interest rates applicable on outstanding amounts against unsecured credit cards.
The facility of procuring Add-On Cards is also available on Secured Credit Cards.
These cards may have specialised usages with regard to reward points and discounts. You must check all the clauses before availing one for yourself.
Though Credit Card against fixed deposit can be extremely beneficial for a certain sect of people, this may be accompanied by a large number of disadvantages.
Restricts liquidity- Fixed Deposit against which Credit Card has been issued by the lender loses its liquidity. The Credit Cardholder cannot liquidate the Fixed Deposit according to his will unless and until the Credit Card dues are completely clear.
Losing capital invested- There is a danger of losing the money invested in the Fixed Deposit if the credit user fails to repay the outstanding dues. There may also be an erosion of Fixed Deposit capital amount and the corresponding interest in the event of non-payment of Credit Card dues.
Hit to Credit Score- Besides the FD capital, it can also impact your Credit Score. The Credit Score of an individual may be impacted adversely if Card dues are not paid timely.
Since banks guarantee the minimisation of loss by issuing a Secured Card, it is important that all conditions such as forfeiture clauses, applicable interest rates, etc. are understood well before starting the application.
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