Credit card loans are quite commonly applied for in India. This is because of the myriad benefits that come along with these types of loans. In this article, we provide you with a consumer guide on credit card loan interest rates.
We cover the basics, explaining credit card loans, and steadily move on to other topics to provide you with an overall guide on this subject. We also offer an in-depth explanation about why credit card issuers or banks charge such high interest rates on cash advances. Credit card loan interest rates, in specific, are one of the first features in relation to credit cards that consumers look at.
It is recommended to research into this aspect, because of the relief it can provide a consumer during a fund-related emergency. We touch upon all the important points you should bear in mind when applying for a credit card, based on its loan interest rate specification. Most credit cardholders tend to pay very little heed to these points, when they are as important to understand as understanding the basics of a credit card.
What is a Credit Card Loan?
Credit card loans are also termed as ‘credit card cash advances’. As both names suggest, it refers to the borrowing of funds against a previously specified credit limit. It is different from an ordinary loan which involves the procurement of borrowed funds according to the cash limit (which is set based on an evaluation of your cash dealing history).
Credit card loans are specifically dispensed based on your credit limit. Credit card loans or cash advances on credit cards require the payment of an interest rate. Transactions related to cash advances can be conducted via an automated teller machine (ATM), or through a convenience check mailed by your credit card issuer.
Fees and Interest Rates
Cash advances on credit cards accrue interest from the day the advance is made. If the total amount of the loan is not paid by the due date, the outstanding amount of the loan will attract interest. In addition to this, credit card loans come with their own upfront charges that are separate from the interest rates you will have to abide by.
These upfront charges will be mentioned in your credit card statement. While the rate from this upfront charge stands at a minimum of 2.5% of the advance being withdrawn, it is important to note that these amounts vary significantly depending on which institution you approach.
Unpaid outstanding balances on credit cards, for this reason, are frowned upon. They result in higher upfront charges which can contribute to the payment of a hefty bill, when considering the interest charges that need to be paid as well.
In terms of the interest that needs to be paid with these cash advances, these interest rates are higher than conventional loan interest rates. This is because they are viewed as ‘high risk’ commodities by banks.
Many consumers turn towards cash advances during desperate times such as during the repayment of another loan. Unlike conventional loan issuers that can just seize the collateral that consumers give them at the time of the processing of the loan, if the outstanding amount is not paid, cash advances do not fall back upon any such collateral.
This means that they are riskier in nature, thereby making cash advance issuers more sceptical of the individuals who request for these credit card loans. It is also the reasoning behind the high interest rate charges.
Important Points to Remember
Most consumers that apply for credit card loans tend to overlook certain things, which demand greater attention. In order to prevent being charged extra, it is important to read the fine print that comes with your cash advance, while also going through the terms and conditions (if any) of the advance thoroughly.
Owning a credit card does not mean that the benefits that come with the card also apply to your cash advance based on your credit card. Any cashback offer, discounts and promotions that you qualify for as the owner of the credit card cannot be availed with this cash advance as well.
Many consumers who apply for credit card loans assume that they will receive double the reward structure because of their ownership of the credit card and the cash advance, but it does not work this way.
This also applies to purchase protection features. Most credit card owners are provided with purchase protection facilities and strengthened security features as well. This, however, does not extend to cash advances on credit cards.
Unlike a standard credit card bill payment, even the best credit cards in India do not provide their owners with cash advances that come with grace periods. The longer you wait, the higher the interest rate of the cash advance.
Certain transactions, such as those made from ATMs abroad or those related to gambling and lottery tickets must not be paid for through your cash advance on credit. The interest rate that would come with such transactions would be exorbitant.
If you’re contemplating applying for a new credit card that not only extends benefits such as loans on credit cards with nominal interest, but also provides reward points and other supplementary offers, you can opt for the Bajaj Finserv RBL Bank SuperCard. With the power of four cards in one, this credit card extends multiple benefits, and can act as an ATM card or an EMI card when required.