New Delhi: India has witnessed a tremendous surge in the demand for credit cards. With several technological improvements and advancements, the area has experienced numerous developments. However, people often need clarification between regular credit cards and a credit card against FD. Although both are identical in many aspects, their primary difference lies in the deposit with the card issuer. Read on to learn more about regular credit cards and secured credit cards against fixed deposits.
What is a Regular Credit Card?
A regular credit card is a useful instrument for making payments. It serves as a line of credit with a predetermined credit limit. Cardholders repay the borrowed amount with monthly bills to continue using the credit line. Reward points and cashback are also available on various expenditures. Before setting the credit limit, companies evaluate income, financial obligations, credit history, etc.
What is a Credit Card Against FD?
A credit card against FD is a secured card banks offer against a fixed deposit. The FD guarantees the card’s security. Customers having fixed deposits at banks may apply for these secured credit cards to build credit scores. For example, if you are an existing customer of Kotak811, you can obtain the Kotak811 Dream Different Credit Card against a minimum fixed deposit of Rs 5,000 only. These cards are beneficial for those with low incomes or credit scores. However, the card functions the same as a regular credit card.
Pros and Cons of Regular and Secured Credit Cards
- Pros of Regular Credit Cards:
- Quick access to credit
- Payment in EMIs through monthly credit card bills
- Extra protection like insurance
- Additional protection against fraud
- Several perks and rewards available
- Cons of Regular Credit Cards:
- Heavy interest rates due to their unsecured nature
- Hidden charges as applicable
- Minimum outstanding payments to make each month
- Possible risk of fraud
- Pros of Secured Credit Cards Against Fixed Deposits:
- Opportunity to build credit scores through regular payments
- Effortless application process
- Continued investment
- Interest rate on fixed deposit
- No debt traps, even in case of a default
- Cons of Secured Credit Cards Against Fixed Deposits:
- Low credit limit depending on the FD amount
- Fewer perks and rewards
- Compulsory FD minimum amount
Differences between Regular Credit Cards and Credit Cards Against FDs
Although both credit card types work similarly, they have the following differences one must know:
| Parameters | Regular Credit Card | Credit Card Against FD |
| Collateral | No collateral required | Secured against a fixed deposit at the financial institution |
| Credit Limit | 80%-100% of the fixed deposit amount | Depends on the applicant’s credibility and repayment capacity |
| Income Requirement | Applicants with sufficient income meeting the eligibility criteria can obtain a regular credit card without security. | No minimum income requirement |
| Minimum Credit Score Requirement | Applicants with a decent credit score have higher chances of getting a regular credit card. | No credit score is necessary |
| Interest Rates | Higher interest rates than secured cards | Lower interest rates than regular credit cards due to the security of a fixed deposit |
| Documents Required | Regular credit card applicants must provide the necessary documents | No additional documents are required, as the financial institution already has proof of the applicant’s identity and residence. Moreover, they have a fixed deposit as security. |
| Withdrawal | No restrictions on withdrawals or card closure | Credit card holders cannot close the FD before the card expires |
| Provider | Offered by almost all banking institutions | Usually offered by select providers like Kotak811 |
| Occupation Check | The credit card company checks the applicant’s occupation and work experience to assess their repayment capacity | No occupation check needed |
Regular Credit Card vs Credit Card Against FD: Which is the Right Option?
Selecting between a regular credit card and a credit card against FD largely depends on an individual’s purpose, credit profile, and spending habits. A regular card is perfect for those looking for lucrative rewards and benefits. On the other hand, a Fixed Deposit credit card is more suitable for those who wish to build their credit score. Regular credit cards also have higher interest rates than secured cards against FDs, helping applicants make an informed choice. However, late payments or defaults will hurt the credit scores of both credit card types. The final choice depends on the individual’s purpose, preferences, and overall credit profile.
Secured credit cards against fixed deposits provide the same convenience of online and offline transactions. Additionally, they offer interest-free credit periods with financial costs for late or missed payments. Secure card owners like Kotak811 should be aware of the credit card bill generation date so they can make the payments on time. Those with little income and poor credit scores can obtain a credit card against FD and build their credit score. However, those who don’t want to pledge their FD as collateral can opt for a regular credit card with a higher interest rate.
Just remember that taking a credit card against an FD makes the fixed deposit inaccessible until you surrender the card or the FD matures. Therefore, financial discipline is necessary to choose and use a credit card wisely.
