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What are the Credit Card Advantages and Disadvantages | ZestMoney (2022)

Overview

Credit cards are one of the most popular financial instruments that are used for a variety of purposes ranging from everyday casual buys to expensive purchases. Credit card users in India in the recent past have increased multifold. According to PWC, the pace was increasing at a 20% compound annual growth in the last four years.

The same report also discussed the gaining importance of multiple credit card alternatives. For instance, the report stated that the BNPL holds a 3% market share and can upto 9% in a couple of years in the online e-commerce payments space. Although credit cards have their own unique set of advantages, they also have a long list of disadvantages which brings up the rising necessity for substitutes and alternates.

Here is a detailed coverage of the various credit card advantages and disadvantages and the different alternatives to traditional credit cards.

What is a Credit Card?

Before understanding the credit card advantages and disadvantages it is crucial to have a solid foundation of what is a credit card and how does a credit card work.

Credit cards are nothing but financial instruments that operate on a line of credit or on the principles of borrowing. They are issued by banks and other financial institutions with a pre-decided credit limit. The two major types of credit cards are consumer and business. Other types include secured, charge, digital, etc.

  1. How Does a Credit Card Work?

    Credit cards come with a certain limit called the ‘credit limit’ that is issued by the financial institution. The credit limit is assigned after deliberation and calculation of the individual’s credit history, credit score, income status, etc.

    The limit then can be used to make purchases for goods and services. In credit card vs debit card, the main point of difference is that a debit card uses existing funds or money from the bank account while a credit card deducts from the assigned credit limit.

    It can also be issued in the form of cash advances. That is, withdrawal of cash is enabled through credit cards. One thing to note is that the interest rates on such advances are higher than on traditional transactions.

    Once you have completed your stipulated period a detailed statement consisting of the various transactions, the amount payable along with the due dates will be mentioned. If you fail to make the payment within the due date or after the grace period the balance will start gaining interest. It is always advisable to pay due amounts incurred from credit cards immediately to avoid the consequences of high-interest charges.

    They can be used for both online and store purchases easily and in a swift manner.

  2. Credit Card Documents Required

    Credit card documents are key in determining your eligibility for a loan. Here is a list of documents that are required:

    1. Proof of Identity – Any one of the following – Passport/Aadhar/Pan/Voters/Ration Card, Driving License
    2. Proof of Address – Apart from the above, Rental Agreement or Water/Telephone/Electricity Bills can be submitted
    3. Proof of Age – Passport/PAN Card/Birth Certificate
    4. Proof of Income:
    – For Salaried Individuals – Form 16/Last 3 Months Salary Slips
    – For Self Employed – Income Tax Returns for the last two years, P&L and Balance Sheet for two years and Bank – – Statement for the last six months, Proof of Business Continuity.
    – For Students – Enrollment Proof, college ID card or Admission Slip or Certificate of Study
    – For NRIs – Mailing Address Overseas

  3. Credit Card Eligibility

    The credit card eligibility criteria although differs from bank to bank, some of the most common ones are as listed below:

    Should be 18 years of age or above
    Should have a reliable source of income
    Should either be self-employed or a salaried individual
    Should either be a resident of India or should have the status of a Non-Resident Indian

    One of the most important factors banks consider while issuing a credit card is your credit score and your past and current debts. A good credit score and history are vital in getting a credit card in the speediest manner. Minimum salary for credit card is also a very important factor which differs according to the issuing institutions

    Want to avoid the cumbersome process of getting a credit card? Sign up with ZestMoney – the best alternative to credit card!

 

Credit Card Advantages and Disadvantages

The merits and demerits of credit cards are wide-ranged and they are also important in understanding various aspects of what is a credit card and the alternatives to credit card.

Advantages of Credit Cards

 

1. Helps in Improving Credit Score

Having a good credit score is indispensable for having a solid financial path. A credit score is also an indicator of your credit history, which in turn plays a big role in lending institutions. For any kind of loan you require, personal loans, gold loans, home loans, etc. having a good credit score is necessary. More often than not, financial institutions reject loan applications if the applicant has a poor credit score.

A credit card, with regular payments, helps build a strong credit history along with a credit score. This in turn highlights the trustworthiness which makes getting a loan or line of credit a hassle-free process.

 

2. High-End Purchases without Hassle

Credit cards are quite handy and useful especially if you are making huge purchases and want to avoid taking a loan you can easily go for the EMI facility of a credit card. Although the payment can be done in a periodic manner and it allows an installation scheme, it comes with the disadvantage of high-interest rates.

 

3. Cash Withdrawals

Although not all credit card providers may have this option, many give you the facility of cash withdrawal with some interest charges. This is one of the highlighting merits of credit cards as access to cash is made possible with a line of credit. But, one should be careful with this option as the interest charged on cash withdrawals can be on the slightly higher side.

4. Offers and Rewards

One of the most appealing points in the credit card advantages and disadvantages list is the incentives and rewards that come with a credit card. Earning rewards like cashback points which can then further be used for air miles, clear remaining dues, etc. Also, many e-commerce platforms including Amazon, Flipkart, etc. have many deals and discounts on credit card usage for numerous products.

 

 

Disadvantages of Credit Cards

 

1. High Interest Rates

Credit card interest rates can be exponentially high if a default on payment occurs. If the stipulated period for payment is crossed, the interest rates charged can be extremely high and might lead to a huge dent in the pockets, making it one of the major disadvantages of credit cards in India.

 

2. Chances of Overspending

A credit card plays make-believe of consequences-less reinless spending. While this may be true to one extent, it is highly tempting and more often than not leads to overspending. This is mainly because there are no direct monies or cash being spent, creating a mirage of no actual expenditure. This is especially applicable for large amounts of unnecessary products or services.

 

3. Hidden Costs

One of the major cons in the list of credit card disadvantages are the factor of hidden costs, which unknowingly causes a dent in the pocket. There are numerous additional charges and fees associated with getting a credit card. Processing fees, joining fees, charges and interests on cash advances, and annual fees, are just a few of the many extra charges that are levied on credit card users.

 

4. Minimum Due Trap

One of the disadvantages of credit cards in India is the minimum due trap which can result in unwarranted interest charges. Credit card companies offer a certain period for paying the bill amount which ranges between 45-55 days.There is a minimum amount to be paid or a percentage of the total amount on or before the certain period and the rest gets carried over to the next month.

But, this leads to users thinking there are no repercussions to the remaining due amount being transferred to the next month, whereas in reality an extremely high amount of interest is charged on the amount that is carried forward.

Exploring Credit Card Alternatives

To get rid of the many cons in the credit card advantages and disadvantages list, is to delve into the different credit card alternatives. They will provide similar services to credit cards but without the many demerits attached to credit cards.

  1. Debit cardsDebit card in the most simple terms is an instrument that gives you easy access to the funds you have in financial institutions. There are no interest charges, annual fees, processing fees, etc. In the debit card vs credit card debate, one of the major points is that with debit cards you can only spend an existing amount, that is there is no form of credit available.

  2. Amazon Pay LaterAmazon Pay Later, previously known as Amazon Pay EMI,  allows customers to avail credit instantly to make purchases on their online marketplace. Customers can make their purchases at the Amazon online store and opt for this option at checkout. This process does not require any paperwork and is completely online.

  3. Personal Loans – Personal loans lend money to the borrowers in one go and the amount can be paid back in instalments. A personal loan is an excellent option to counter the demerits of overspending, high-interest charges, etc. in the credit card advantages and disadvantages. They can also fund a variety of different things including weddings, education, online purchases, etc. With ZestMoney availing a personal loan is a seamless and fast-paced process and you can get any different types of personal loans too. Get an instant loan with low CIBIL score now with ZestMoney!   

  4. ZestMoney Cardless EMI –To first dive into ZestMoney EMI, it is important to understand ‘what is cardless EMI’. It is basically a payment option which does not involve the usage of cards. There are many benefits with this easy EMI app like no processing fees or other extra charges, no-cost EMI option upto 3 months, a simple process to be followed, etc.Sign up with ZestMoney today and avail no-cost EMI** in just a jiffy!

ZestMoney EMI vs Credit Cards

These are some of the major credit card advantages and disadvantages. It is important to have a detailed and in-depth understanding of the various elements and factors like what is a credit limit, how does a credit card work, and even the credit card alternatives.

One of the best ways to combat the disadvantages of credit cards is cardless EMI. If you have been wondering what is cardless EMI you have come to the right place. Cardless EMIs are packed with the best of benefits and are devoid of the many cons in the list of credit card advantages and disadvantages. Here is how you can apply for a cardless EMI with ZestMoney.

  • Credit Score: Credit card eligibility requirements in many financial institutions include a good credit score. Without a good credit score, the chances of getting issued a credit card are highly slim. EMIs on the other hand does not require you to have a good or definitive credit score to utilise them.  
  • Flexible Repayment Plans: With EMIs you do not have to worry about ‘missed credit card payment by 1 day’ or high-interest rates. You can choose from the multiple EMI plans to customise them to your individual needs and requirements. 
  • Extra Documents: The credit card document requirements are many in number and it differs according to multiple factors. For availing ZestMoney EMI the only documents you have to submit are Identity, Address, and Income proof. 
  • No-Cost EMI**: High interest rates are one of the biggest risks associated with credit cards. With ZestMoney EMI you can avail the option of no-cost EMI with the 3-month tenure plan and be stress-free about additional interest charges.     
Parameters ZestMoney EMI Credit Cards 
Interest Rates  Low Interest Rates  30-40% p.a 
Documents Required Identity, Income and Address Proof Identity, Income, Age, and Address Proof, 3 Months Pay Slip
Repayment Period 3-9 Months 15-45 Days
Credit Score Not Required Required

Also, the minimum salary for credit card is one of the most important requirements for salaried and self-employed individuals. For EMIs there is no necessity for proof of minimum salary. You can learn and understand more about ZestMoney EMI by visiting this link.

How to Apply for ZestMoney EMI?

You can apply for ZestMoney EMI in a simple and straightforward process with easy-to-execute steps. 

The process to be followed: 

  • Sign-Up: The first step is to sign-up with ZestMoney either through their website portal or by downloading the app. It is a two-step process where you just have to verify your phone number. 
  • Activate Credit Limit: According to the eligibility and documents criteria, you have to submit the necessary documents to complete the eKYC process post your credit limit gets activated. 
  • Choose your favourite online retailer: Next, shop your best items from any of your favourite retailers including Croma, Amazon, Apple, etc.  
  • Choose your EMI plan: At the payment stage of the selected retailer’s website, choose ZestMoney’s EMI as the payment option along with the plan you prefer.  
  • EMI Plan Approved: Congrats! Your EMI plan has been approved!

ZestMoney conducts a quick risk assessment test based on the information supplied by you to determine whether you are eligible for ZestMoney EMI or not.

Sign up with ZestMoney and get low cost EMI now! 

Frequently Asked Questions on Credit Cards

What are the different credit card alternatives?

Personal loans, Cardless EMI, and Debit cards are some of the alternatives to a credit card. With these options, you can override the main disadvantage of credit cards, overspending.

Can I get a credit card with a bad credit history?

Yes, you can. Although it is possible, with bad credit history the process of getting a credit card is highly cumbersome. Also, the chances of getting one with a poor credit score and history are slimmed down immensely. One of the best options is to go for a secured credit card. A secured credit card is offering collateral or security as a backup in case of default of payments.

What are the main differences between credit card vs debit card?

Credit card in the most simple terms offers you a loan of sorts or a line of credit whereas debit cards are directly linked to your bank account. The deduction of money in a debit card takes place from your bank account or existing funds.

What is credit limit and how does it work?

The maximum amount that can be charged on the credit card is known as the credit limit. Credit Limit is the upper amount of credit extended to a customer while using his/her credit card. Generally, the amount is arrived at by the Card Issuers basis the credit history of the customer. They are usually given a credit period of 30-45 days. i.e for the purchases they do between. 1st and 30th of every month, the bill needs to be paid on the 15 th of the succeeding month.

What happens if I missed credit card payment by 1 day?

There will be a late payment charge compounded with interest charges for a day. The charges and interest varies from Company to Company

Do personal loans affect credit score?

Yes, personal loans affect your credit score. Personal loans, mainly through repayments can affect your credit score. If you maintain your payments on time, you can boost your credit score. But, there are numerous other factors to be considered including payment history, existing debt, etc. ZestMoney is one of the best low CIBIL score personal app, as you can build your credit score by shopping with your partners and timely repayments.

Can I do EMI shopping without credit card?

Yes, you can. It can be done on the ZestMoney easy EMI app. All you have to do is signup and provide your KYC details. After that, you can build your credit limit by shopping from any of your favourite retailers for any products and services.

What are the credit card eligibility criteria?

The eligibility criteria are as listed below:
a) Should be 18 years of age or above
b) Should have a reliable source of income
c) Should either be self-employed or a salaried individual
d) Should either be a resident of India or should have the status of a Non-Resident Indian

What is the minimum salary for credit card?

The minimum salary for a credit card applicant will vary from institution to institution. Also, it depends on whether the applicant is Salaried or Self Employed. However, on average, the income requirement is between Rs 1.50 to Rs 3.00 lakhs for a credit card applicant.

What are the different types of credit cards?

The different types of credit cards are as follows:

  • Secured Credit cards.
  • Cashback Credit cards.
  • Student Credit cards.
  • Travel Credit cards.
  • Business Credit cards.