Credit card with overdraft facility
The use of plastic money and the increasing popularity of such formats have revolutionized the way payments are made and received. The most popular types of plastic money are debit cards and credit cards. Credit cum debit card is a single card which has the features of both a credit card as well as a debit card. Although we have all heard about ATM cum debit cards, the term credit cum debit cards is not so common. Over the past few years, some banks in the country have introduced such cards.
What are credit cum debit cards – These are essentially debit cards, but work on the concept of an overdraft benefit for the customer. That is, the customer can use the card to withdraw money from ATMs and also at merchant establishments like any other debit card. In addition, once the balance in his account is exhausted, he can use the card up to a pre-determined credit limit, over and above the account balance. This in effect is like taking an overdraft on your account.
What are the features – A credit cum debit card carries all features of a normal debit card. In addition, a credit limit is determined up to which the customer can withdraw at ATMs or use in merchant establishments. The credit limit is set based on certain eligibility criteria of the customer.
What are the eligibility criteria – These cards are issued only when the bank is convinced of the credit standing of the customer. The eligibility criteria and the credit limit determination are based on different factors for different banks. Usually, it is set at 2-3 times of the take home salary. Some banks also determine this based on other factors like a proportion of fixed deposits (if you have one) with the bank or based on a security like bonds or National Savings Certificates to be kept with the bank. The limits set and the eligibility criteria vary from bank to bank and also in some cases, from customer to customer. Most banks however grant this card only to salary account holders. This is because they would want a backing in the form of a regular salary credit into the savings account, in case there is default in payment of interest or the amount spent.
What are the charges – These cards usually come with no processing fees or initial charges. However, this may vary from bank to bank and also depending on market conditions. You obviously do not have to pay on the ‘debit’ part of the card, i.e.: up to the amount of balance in your account. Over and above this, when you use the credit limit, you will have to pay interest on the used amount, similar to normal credit cards. However, the interest rates charged on the credit used is usually lower than what is charged on traditional credit cards. It ranges from 14%-18% per annum, whereas the charges on a normal credit card are upwards of 24% per annum. Also, since it is a debit card also, the charges on cash withdrawal at ATMs are not applicable, unlike most traditional credit cards. However, there is a catch here. The interest is applicable from the day the credit limit is used. That is, unlike traditional credit cards, there is no interest free period available in credit cum debit cards. So the charges are levied on the entire period. The interest charged is recovered from the amount in the savings bank account.
Are there any additional features – Sometimes, there are additional benefits available on credit cum debit cards such as insurance cover. Reward points also can be earned like a normal credit card. At times, these cards are also eligible for discounts and offers with various merchants. You will need to check with your bank if these benefits are applicable on the card.
What are the benefits and drawbacks – The biggest benefit of a credit cum debit card is the ease of using it both in the form of a debit card and a credit card. So you will not have to carry two different cards as this has both the features. The interest rate you pay on the credit is much lower than a normal credit card. The interest you pay also works out to be lower than most personal loan products available. Another positive is that there is no cash withdrawal charge. However, nothing comes only with positives. The drawback of using the credit limit on this card is that you will have to pay interest for the entire period on the overdrawn amount and there is no interest free period. So, in effect, it is like paying back a personal loan.
Should you opt for this card – This card definitely has unique benefits and advantages. Moreover, most banks offer it for free in order to popularise it. However, remember the downside of paying interest throughout the period. Also do not forget to enquire the extra benefits and features you get out of this card. Compare these features with standalone products and then decide if you should take it or not.