Money9 Helpline | Should you get a credit card?

Accept it or not, credit cards have become an indispensable part of our lives. We’ve been spoilt for comfort to an extent that ease of use and convenient pay-back options offered by credit card companies seem irresistible. The fact that credit cards make it possible for you to not only use extra funds but also receive reward points makes it a very popular financial tool.

While it’s true that deals and discounts offered by credit card companies may be unparalleled in terms of instant benefits but beware if you’re a procrastinator when it comes to repayments. If you own a credit card,  you know how outrageously high are the interest rates charged on it. Even though credit cards are similar to personal loans – both are unsecured loans – the interest on the former is much higher compared to any personal loan.

Now the reason for charging high-interest rates on this product isn’t mere profit-making. The reason resides in the way credit is designed and the risk surrounding it due to its unpredictable nature of usage.

“The unsecured nature of credit cards makes issuers charge high interests due to the higher credit risk involved. However, a more important reason is the credit line sanctioned in the form of a credit card limit. Unlike personal loans, credit card users do not have to submit applications for accessing instant credit. All they need to do is swipe their credit card or use it online and repay the transactions as per their repayment capacity,” Sahil Arora, director of Paisabazaar.com said.

In a recent episode of Money9 Helpline, a caller, Anurag Shah had a similar question on whether one should opt for credit cards or not.

“Credit card is a good option if you use it as a facility only. It is plastic money and you don’t have to carry it around like cash. If you use a credit card, ensure that you clear off the dues on time. But you should strictly avoid using it for a purpose of availing of loans. Credit card loans are the worst and have exorbitant interest rates,” Finscholarz’s Renu Maheshwari explained.

Thus, if you’re an avid credit card user or planning to use one, make sure your repaying abilities are top-notch.