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September 25, 2013

Credit Cards Introduction - Advantages and Disadvantages


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Commercial Banks have introduced Credit Card facilities in the early 1980's. From then, the facility has become popular among the public as well as banks.

Features of Credit Cards :
  • Acts as a document of credit worthiness of card-holder and minimizes the use of hard cash in setting the day to day transactions.
  • It acts as a medium of exchange.
  • Helps to buy whenever the cardholder likes to buy and can pay whenever he likes.
  • In India, credit card interests are typically charged at a rate of 3.35 – 3.49% per month.
  • The cardholder has to pay an initial annual deposit.
  • Credit cards are mostly used by elite corporate executives, businessmen, middle income gropu to buy consumer durables and certain services from railways hospitals etc.
  • Now a days almost all banks are providing credit card facilities.
  • No matter where the cardholder is, he does not have to worry about to carry enough money for his / her purchases.
  • Bankers bears the cost of issuing credit cards.
  • Banks also bears the risk of non payment by the card holders.
  • The income for the bank is the excess commission received from the seller over interest factors and administrative and advertisement costs.
  • Credit limit is specified on every card basing on the income level and type of the card.
Benefits to Credit Card Holders :
Credit cards offers the following benefits to card holders
  • Useful in Emergencies : They can purchase goods and services at large number of merchant outlets upto inbuilt ceiling credit limit amount without cash or cheque. This is generally useful in emergencies.
  • Interest free period : Card holder has the period of interest free credit depending upon the issuing bank and card scheme. i.e., the normal card and gold cards as offered by various banks. The period of interest free credit range from 15 days to 51 days and there after interest @ 3.35 – 3.49% per month charged.
  • Cash withdrawal from ATMs : Cash upto a ceiling within the credit limit can be obtained from banks' branches or ATMs.
  • Need to carry liquid cash : Credit card holder need not carry any liquid cash. He can purchase without any cash and pay later.
  • Benefit of free accident Insurance Cover : The card holder also get a free accident insurance cover and add on card for spouse and children.
  • Useful for other purposes : Credit cards can also be used for rail reservation, air ticket booking, hotel booking, sending gifts etc.
 Advantages of Credit Card to the Issuing Bank :
  • Reduces operational cost : Credit card reduces operational cost of the bank and increases their reach and profitability.
  • Enhancing the customer base : Credit card also enhances the brand image of the card issuer and increases its customer base. 
Disadvantages to Credit Card Holders :
  • Over Spending :Credit Card facility oftenly results in over purchasing and over spending unintentionally.
  • Possibility of Frauds : There is possibility of frauds due to loss of cards in the intervening periods.
  • Possibility of forged signatures : Since signatures are already on the cards, forged signatures could cause a loss to the cardholders. Such kind of forged signature loss could be avoided with use of Photo Credit Cards (credit Cards with the photographs of the user.).
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  4. Credit card in today's world is one of the best thing of comfort for people.The use of credit card in our daily expenses comes with great advantage for people.Thanks for sharing your precious knowledge over credit cards.
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