When it comes to managing your finances, credit cards have become an essential tool. They offer convenience, security, and various benefits. However, not all credit cards are the same. If you are considering applying for a credit card, it’s important to understand the difference between regular credit cards and credit cards against fixed deposit. Both types have their unique features and benefits, and understanding these differences can help you choose the right one for your needs.
In this article, we’ll explore the key differences between these two types of credit cards and how Kotak811 offers you a straightforward way to choose between them.
What is a Regular Credit Card?
A regular credit card is a traditional credit card that allows you to borrow money up to a specific credit limit set by the issuer. This credit limit is determined based on factors like your income, credit score, and financial history. When you use a regular credit card, you essentially borrow money from the credit card issuer, and you are required to repay it within a certain period.
If you pay the full balance within the due date, you avoid paying any interest charges. However, if you carry forward any unpaid balance, interest is charged on it, which can add up quickly. Regular credit cards often come with rewards like cashback, travel miles, and discounts on various purchases.
What is a Credit Card Against Fixed Deposit (FD)?
A credit card against fixed deposit works differently. With this type of card, you need to pledge a fixed deposit as collateral. The credit limit is usually a percentage of the amount you’ve deposited. For example, if you have a fixed deposit worth ₹50,000, your credit card limit might be 70-90% of that amount, depending on the terms and conditions of the issuing bank.
This means you are not borrowing money from the bank in the traditional sense. Instead, you are using your own funds as security. If you fail to repay the credit card balance, the bank has the right to liquidate your fixed deposit to recover the amount owed. This makes credit cards against fixed deposit a safer option for banks, which can sometimes result in easier approval processes.
Key Differences Between Regular Credit Cards and Credit Cards Against FD
Eligibility Criteria:
Regular Credit Cards: For a regular credit card, banks usually consider your income, credit score, and past financial behavior. A strong credit history and higher income may increase your chances of approval.
Credit Card Against FD: With credit cards against fixed deposit, the eligibility requirements are more straightforward. Since the credit card is secured by a fixed deposit, your credit score and income are not as critical. If you have a fixed deposit, you can use it as collateral to get the credit card, making it easier for individuals with poor or no credit history to qualify.
Credit Limit:
Regular Credit Cards: The credit limit on a regular credit card is decided by the bank based on your creditworthiness. Banks evaluate your income, credit score, and repayment capacity to set the limit.
Credit Card Against FD: The credit limit on credit cards against fixed deposit is usually a percentage of your fixed deposit amount. If you have a higher deposit, you can get a higher credit limit. However, this limit will always be tied to the amount you have in the FD.
Interest Rates:
Regular Credit Cards: Interest rates on regular credit cards can be high, especially if you do not clear the balance on time. Late payment penalties are also charged, making it essential to pay your bill in full each month.
Credit Card Against FD: The interest rates on credit cards against fixed deposit tend to be lower because the card is secured by your deposit. This reduces the risk for the bank, allowing them to offer more favorable terms. However, it is important to note that interest is still applicable if you carry a balance.
Risk of Losing Your Deposit:
Regular Credit Cards: With a regular credit card, the risk is mainly financial. If you fail to repay, your credit score will suffer, and you may be charged a penalty. However, your savings and assets remain safe.
Credit Card Against FD: The main risk with credit cards against fixed deposit is that you are pledging your fixed deposit as collateral. If you fail to make payments, the bank may liquidate the FD to recover the amount owed, which means you could lose your deposit.
Rewards and Benefits:
Regular Credit Cards: Regular credit cards often come with a wide range of rewards such as cashback, discounts, travel perks, and more. These rewards can add significant value if used wisely.
Credit Card Against FD: While credit cards against fixed deposit can offer rewards, they may not be as extensive or as attractive as those on regular credit cards. The focus is more on providing a basic credit option to individuals who may not qualify for a regular credit card due to a lack of credit history.
Security:
Regular Credit Cards: Regular credit cards offer convenience, but they come with the risk of accumulating debt, especially if the cardholder does not manage their spending carefully.
Credit Card Against FD: Since credit cards against fixed deposit are secured by your own funds, the bank has lower risk. This type of card is ideal for those looking to control their spending while still having access to credit.
Which One Should You Choose?
The choice between a regular credit card and a credit card against fixed deposit depends largely on your financial situation and needs. If you have a strong credit history, a regular credit card may offer more benefits in terms of rewards and flexibility. However, if you are new to credit or have a poor credit score, a credit card against fixed deposit might be a safer option, as it allows you to build or improve your credit score while keeping your fixed deposit secure.
If you’re considering applying for a credit card, Kotak811 offers a convenient platform to explore various types of credit cards and make an informed decision based on your financial goals. Whether you’re looking for a regular credit card or one secured by a fixed deposit, Kotak811 makes it easy to apply and manage your finances, all from the comfort of your home.
Conclusion
Understanding the key differences between regular credit cards and credit cards against fixed deposit can help you make an informed decision about which one suits your needs. Both types of credit cards have their pros and cons, and choosing the right one depends on your financial goals and circumstances. With Kotak811, you can seamlessly explore your options and choose the best credit card that aligns with your lifestyle.