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Differences between Regular Credit Cards vs. Credit Cards against FD
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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India has seen a tremendous upsurge in the credit card market. With several advancements and technological improvements, the area has numerous developments.
Smooth onboarding processes, unique card products, personalized offers and rewards, and improved mobile apps are just a few of these improvements' new features.
The post-pandemic credit card market has seen a significant transformation and is continuously changing due to the emergence of e-commerce and the acceptance of contactless payments.
Nowadays, just like you can take out a loan against your fixed deposit, you can also get a credit card against it. People who have difficulty qualifying for a credit card due to their low income or credit score can avail of an FD credit card.
So, how does a regular credit card differ from a credit card against FD? In this blog post, we will examine the differences between a standard and a fixed-deposit credit card.
What is a regular credit card?
A regular credit card is a payment instrument that allows you to purchase and access money. Credit cards issued by Banks and other financial organizations serve as a line of credit.
Credit cards provide users with convenience and security, as they can be monitored and tracked in case of fraud or theft.
Benefits of a regular credit card
A credit card offers numerous benefits to the cardholder; some of them are:
What are credit cards against FD?
As the name implies, a credit card offered by a Bank to a person against their FD (fixed deposit) that the customer is guarantying as security for the card is known as a credit card against FD.
Secured credit cards are given to customers with FD accounts at banks and other financial organizations who want to establish credit scores.
These cards are helpful for people with low credit scores and incomes. Credit cards against FDs provide the same function as regular credit cards.
Benefits of a secured credit card
A credit card backed by fixed deposits also offers significant advantages, including:
What distinguishes a credit card against FD from a regular credit card?
Regular credit cards and credit cards backed by fixed deposits function similarly, but they have some differences. Let us see a few of them:
1. Collateral
With a regular credit card, there is no collateral requirement. However, credit cards backed by FDs keep fixed deposits as collateral.
So, if cardholders do not pay their due amount or interest, the card provider can seize their FDs to recover the amount.
2. Income requirements
For a secured credit card, the fixed deposit serves as the security, so additional income documentation is not required.
However, a person must provide proof of income with a regular credit card.
3. Credit score
A low credit score can get a fixed deposit credit card. In contrast, a person might only get a regular credit card with a high credit score. The criteria for credit scores will vary according to card providers.
4. Documents required
Applicants do not need to provide additional documents to prove their identification or place of residence if they already have a fixed deposit with the Bank. They may apply for a secured credit card right away using the FD.
Conversely, with a regular credit card, applicants have to provide the necessary documents.
Withdrawal
Users of secured credit cards cannot terminate their fixed deposit accounts before the card is closed or expires. Nevertheless, this is different from a regular credit card.
Credit card limit
Banks use the fixed deposit value to decide the credit limits for secured credit cards. The secured credit card’s credit limit normally ranges between 80% and 90% of the fixed deposit amount.
Conversely, in a regular credit card, card providers decide the credit limit based on the applicant’s income and credit score.
Cardholders can also increase their credit card limit to get the most out of their credit card.
Conclusion
Secured credit cards provide the same benefits as regular credit cards on purchases made, such as reward points, coupons, discounts, etc. Additionally, they offer an interest-free credit period and impose financial costs for late payments of credit card bills.
For those with a poor credit rating, little income, or not eligible for a regular credit card, a credit card against a fixed deposit works well.
Be cautious about touching the FD funds once they have matured. Nevertheless, getting a regular credit card or a credit card backed by FD serves a similar purpose. Of course, one must be a disciplined spender to use them wisely.
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