Does it Make Sense to Have a Credit Card in India?

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In the Indian context of spending money, cash has always been the first preferential mode of payment. Nonetheless, with digitisation catching up in India, this is changing and now, credit cards are taking over. A credit card in India is easy to acquire, and several Indians find that credit cards offer convenient ways to afford goods and services, especially those who earn a regular salary. So, does it make sense to have a credit card in India? Let’s explore why you could consider having a credit card in India.

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Using a Credit Card in India

In the financial year 2022 (FY22), almost 73 million credit cards were issued in India. In recent years, the cumulative number of cards has increased constantly and even recovered rapidly from plunging numbers in the first wave of the pandemic.

For those of you who have never used a credit card, you should know that this plastic card gives you a line of credit to buy goods and services. When you purchase with a credit card, you do not have to pay anything upfront and only have to settle the bill after the billing cycle is over. Usually, you get a line of credit for a month or more, depending on the credit card you have.

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The Use of Credit Cards in the Indian Context

The use of a credit card in India has become more popular than ever in the past decade. There has been a surge in credit card users in India, and several banks and financial institutions have risen to meet the demands of Indian consumers applying for cards. With enhancements in technology, the use of credit cards has become rampant whether you want to use cards to purchase your groceries or high-ticket items like appliances. With banks and other financial institutions in India making credit cards more accessible and customisable for different purchases (with incentives), the use of cards is very common now. Additionally, since most merchants accept online payments, the credit card in India has become even more popular.

The Indian government has also played a key role in boosting credit card use in India. By introducing demonetisation and the resulting insufficient currency flow in the country, credit card use was the solution for many Indians’ monetary concerns.

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Cash Payments vs Card Payments

If you are wondering whether it is worth using a credit card in India, the first thing you should consider is comparing credit cards to cash. You may argue that cash payments are more straightforward and since many Indians have used cash as a payment mode for decades, credit cards may not make sense in the Indian ecosystem. After all, cash is widely acceptable, there is no interest to be paid, and it is tangible.

Though these are valid points that favour the use of cash, credit cards offer you many benefits, like tracking your transactions, being able to afford goods and services when you want, tackling emergency spending, and gaining rewards and discounts. Credit cards also offer security as you do not have the burden of carrying large amounts of cash with you wherever you go.

Pros and Cons of a Credit Card in India

Using a credit card in India has the same pros and cons as using one anywhere else in the world. Though using plastic may seem quick and easy, you must consider both sides of the story before you get one. Credit card use may be encouraged, provided you monitor your spending. Here are some pros and cons to think about:

Payments

A credit card gives you the advantage of paying for goods and services anytime you want, especially when you do not have sufficient cash on hand. This is the most significant benefit of a credit card in India, especially when you must spend for emergencies. The disadvantage of using a credit card in India is that payments you make with your line of credit must be settled at the end of your billing cycle. So, in effect, a credit card lets you take a loan from a credit company, and this must be paid back. In case you overspend and are unable to settle your credit card bill, you are charged interest, and this may pile up into unwanted debt.

EMI Payments

One of the benefits of using a credit card is that you can buy goods and services on EMI (equated monthly instalments). This allows you the facility of paying for things with a lesser amount of money regularly, breaking up a lump sum payment into 3, 6, 9, or 12-month instalments. The disadvantage of this is that you cannot fail to settle an EMI payment once you get your credit card bill, like any other payment on your credit card. If you fail to make payments on time, you stand to be charged with heavy interest.

The Carriage of Cash

If you use a credit card in India, you do not have the burden of carrying cash around. This is true when you go abroad as well. However, credit card use may often be reckless and compel you to overspend beyond your ability to settle your bills.

Security

Credit cards offer you security in payments and allow you to make transparent payments. You may use a PIN (that only you can know) to operate your credit card. Also, many credit cards are enabled with Wi-Fi and you simply have to tap cards to use them. The disadvantages of this come with the fact of someone else getting their hands on your PIN or stealing your credit card and using the Wi-Fi facility.

Responsible Use

A credit card in India is a boon but must be used responsibly. With added security measures in place, you can report lost or stolen cards and have your card blocked in such circumstances. Furthermore, although tempting, you must not use your credit card to spend beyond your means as you have to consider the settlement of credit card bills later. 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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