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Credit cards have been the most preferred mode of payment for both online and offline purchases. Irrespective of an individual being a businessman or a salaried professional, people of all age groups choose to pay with a credit card as it comes with a number of rewards. Rewards begin at the stage of application through purchase. It also takes precedence as it gives a window for repayment. Here is a detailed explanation of what a credit card is and its actual workflow.
A credit card is a thin rectangular plastic card issued by a financial institution. It allows a cardholder to borrow funds to pay for the purchase of goods and services. The cardholder must pay the borrowed money, with interest, to the financial institution along with any agreed-upon charges. It is also possible that the financial institution will provide a line of credit so the cardholder can borrow money in the form of cash advances. However, issuers will set a borrowing limit based on the cardholder’s income level. Credit cards are considered the most popular payment method in today’s world.
Step 1: Visit the credit cards page on the website of the bank you are considering to get a credit card from. Step 2: Read through the benefits and features of cards listed to choose the right credit card you wish to apply for from the available list. Step 3: Go through the eligibility criteria associated with the card and verify if you satisfy them all. Step 4: If you think you satisfy the criteria, go ahead and click on the ‘Apply Now’ button next to the card’s description on the bank’s website. Step 5: In the application form, fill up all the necessary details. Step 6: Attach a copy of all the necessary supporting documents while applying. Step 7: The bank will process the application and get in touch with you on the status.
A credit card is a line of credit offered to a cardholder by a bank or a financial services company. Credit cardholders can make purchases using the given credit without having to pay fully for the purchase with cash instantly. The charges made to the card will accrue as a balance to be paid off every month or based on the billing cycle. The buyer gets more time to arrange for cash to pay off the balance. The maximum line of credit allowed, credit limit, is determined based on the customer’s credit history and income. If the customer pays off the statement balance in full every month, the customer’s credit score increases, leading to better chances of getting a bigger loan. Also, every transaction made with a credit card will be capable of earning some rewards. In contrast, if the customer fails to pay the statement balance on time, the unpaid balance will accrue interest. The interest charged on the unpaid balance is considered higher as compared to other loan types. In this case, late payment fees will be applicable in addition to the interest rate. It may harm the individual’s credit score.
Here is a list of the features and benefits of using credit cards:
Credit card limit or the credit limit is the purchase limit allowed on a credit card as set by the bank or financial institution. The term ‘limit’ means the maximum amount you can spend with your card. The limit is usually determined based on the customer’s monthly income and credit history. There may be other criteria to set the credit limit based on the bank you are dealing with. You can request for an increase/decrease in the limit based on a change in your income or liability.
There are several methods to pay a credit card bill, such as:
Consider that you have a credit card and you have purchased a dining table for Rs.10,000 on 1 October 2019. For a billing cycle from 15 September 2019 to 15 October 2019, the statement date is 16 October 2019. The bill payment due date is on 4 November 2019. You will be charged a monthly interest rate of 3.5% on the outstanding balance. Minimum payment, here, means 5% of the bill amount plus any charges applicable. The general formula to calculate interest is given below, Interest = [outstanding amount x interest rate per month x 12 months x number of days] / 365 Scenario 1: Full payment made before the due date Payment made: Rs.10,000 Payment date: 3 November 2019 Payment due date: 4 November 2019 Next statement date: 16 November 2019 Since the payment is made in full before the due date, 4 November 2019, no interest will be charged on the bill. Therefore, you can pay Rs.10,000 to clear the outstanding balance. Scenario 2: Partial payment made before the due date Payment made: Rs.5,000 Payment date: 3 November 2019 Payment due date: 4 November 2019 Next statement date: 16 November 2019 Since you choose to make a partial payment within the due date, you must pay a minimum of 5% of the outstanding balance (Rs.10,000). In this case, the minimum payment amount required is Rs.500. However, if you decide to pay Rs.5,000, the interest payable over the period is calculated below. Interest levied from the date of purchase to the date of payment = (34 x 10,000 x 3.5% x 12)/365 = 391.2 Interest is calculated based on the number of days between the date of payment and the next payment due date. If the payment is made in two instalments within the payment due date, the last payment date is considered for calculations. In this case, the interest payable is = (13 x 5,000 x 3.5% x 12)/365 = 74.79 Total interest to be paid = 391.2 + 74.79 = Rs.466