A credit card is a payment card issued by banks and financial institutions. It allows an individual to borrow funds from the bank, which can be used for the purpose of payments and purchases, both online and offline transactions. The bank creates a revolving account and issues a line of credit to the cardholder.
Credit cards can be used for multiple purposes such as payment of bills, shopping expenses, flight tickets, hotel or restaurant reservations, etc. It is usually used for small to medium expenses but can also be used for large expenses based on the card limit. The cardholder has to repay the credit money with a rate of interest charged on it, usually on a monthly basis. Failure in repayment can lead to additional fees and a higher rate of interest on the accrued debt. There are different kinds of credit cards such as standard credit cards, shopping credit, secured credit cards, rewards credit cards, etc. An individual should choose a card that meets their needs.
A credit card has several benefits such as it provides the convenience of not having to carry cash everywhere they go, this also results in safety. Credit cards can also be used to improve your credit score by making timely and regular repayments of the owed amount. This helps in increasing the credit limit and also helps in availing loans in the future as it shows positive repayment abilities. Using a credit card also provides the benefit of additional liquidity which can be very handy in emergencies.
Credit cards can also be used as a budgeting tool because the credit card company provides a detailed statement of the transactions made using the credit card every month, this helps in tracking the expenses and managing your finances. Payment through credit cards also gives the cardholders rewards such as cashback, vouchers, gifts, and discounts on flight tickets, shopping bills, etc. Even the repayment structure of credit card amounts is flexible.
The rate of interest charged on credit cards varies in every bank and financial institution, for example, HDFC Bank Credit Card charges a rate of interest of 3.4% per month. The rate of interest on a credit card is not determined by factors such as repayment capacity but it can be adjusted based on the usage of the card and the relationship of the cardholder with the bank. However, a credit card has an interest-free period that ranges from 20-50 days, it depends on the day the transaction has taken place.
The interest-free period does not apply to cash withdrawals and transactions that have been forwarded to the next billing cycle. The rate of interest on credit cards is only charged when the repayment has not been made on time and in cases of cash withdrawals. If the cardholder makes the repayment on time, they do not have to worry about interest being charged.
Ways to a low-interest rate credit card
Improving credit score- There is a direct connection between your credit score and the credit that is being paid by you. To qualify for better interest rates, one should work to improve their credit score in the longer run. A credit score can be proof of your creditworthiness. This can be done by making timely repayments, maintaining a good debt to income ratio, assessing your credit score from time to time, etc.
Do your research- Before choosing any credit card, it is advisable to do detailed research about the terms and conditions associated with the credit card. A low-interest rate credit may not have rewards and discount benefits but it can help you to save money. Therefore all options should be compared and then a decision should be made.
Maintaining a good relationship- Maintaining a good relationship with the bank can help an individual to get a low-interest credit card. By simply speaking to a bank executive can help an individual to meet their financial requirements.
Zero percent APR- Another way to get a low-interest credit card is to apply for an introductory 0% APR offer, in which no interest is charged on any payment for a said period. It is important to understand the policies completely before choosing any offer.
Also read this: A Credit Card For Low Income People