How students should choose the right credit card, take advantage of it

Harshad Chetanwala, SEBI-registered investment advisor and co-founder, MyWealthGrowth, says, “Credit cards are meant for people who hold positions and intend to repay the entire amount on time.

The same advice applies to studentsMost of whom do not have an independent source of income but want to use credit cards during their college years.

The credit card market for students in India is quite small as most of the students are financially dependent on the parents and part time job is not an ideal one in the country. For these reasons, banks and credit card companies offer a very limited number of options that suit the needs of the students and all of them come in the form of secured cards.

In addition to credit cards, some fintech companies also offer micro-loans to students for both college-related expenses and aspirational expenses. The third option available to students is a prepaid card, which is not a form of credit. It functions more like a debit card, but without being linked to a bank savings account.

Here are some credit options that students have and important things to remember as they prepare to start their credit journey.

what’s on offer

Credit cards are offered to students in three forms- against a fixed deposit (FD), or with an education loan, or as an add-on credit card from their parents. Under all the three options, the student is not required to show income or credit score.

Card on Collateral: The rationale behind pledging FDs by banks is that the students do not have any income. BankBazaar.com CBO Pankaj Bansal says, “Since the card is taken against an asset or investment, or both, the risk for the issuer is not very high.” Interest will also be available on lock-in FD.

Banks ask for minimum Offer 10,000-20,000 FDs and credit limits up to 90% of the FD amount. There are additional conditions. Raj Khosla, Founder and MD, MyMoneyMantra.com says, “Unless the card is cancelled, the FD account should be of six months and should be automatically renewable.”

see full image

In some cases, a bank with whom you have a strong banking relationship and savings history may also offer a credit card based on just a savings account. But, in such a case, you cannot apply for a credit card and you have to wait to approach the bank with a pre-approved offer. “After retaining the student Kashif Ansari, assistant professor at Delhi University’s Hansraj College, says, “For about four months, a bank may offer a pre-approved credit card of ₹40,000-60,000 in a savings account. However, this is not widely practiced by banks. Is.”

Add-on Card: In an add-on card, the primary cardholder is the parent and their credit limit is extended to the student. This means that the repayment liability lies entirely with the parent and not the student.

The advantage of this is that the student gets a higher credit limit and bigger rewards. “Add-on credit cardholders earn the same reward points as the primary cardholder,” Khosla said.

However, an add-on card will not help in building credit history of students as they are withdrawing money from their parents’ credit limit and not a standalone limit allotted to them. “The card is issued to the primary borrower keeping in mind their financial capability and credit history. This also means that if the bills are not paid on time, the credit score of the primary cardholder will be affected,” says Bansal.

Student Forex Card is a good option for students going abroad for their education. They are a prepaid card and offer benefits such as discounts on extra baggage, free International Student Identity Card (ISIC) membership and vouchers on card loading.

see full image

Is a regular credit card better?

Reward rates on student-focused cards are low and benefits are available only on expenses that students incur frequently. “Student credit cards are usually no-frills cards with no annual fees and low credit limits, because the issuer is not sure whether the student can be relied upon to pay off large balances. The associated rewards are also small, says Bansal.

For example, the most attractive benefit of most student-focused credit cards is the waiver of fuel surcharges. Or, these offer higher cash withdrawal limits of 80-90%, as opposed to the 40-50% offered on regular credit cards. Brand-focused rewards or benefits on vacation expenses, such as air miles, eating out or shopping, are negligible.

Ansari says, “These cards were launched with the intention of getting the youth into the ecosystem early. But, many banks do not find it attractive and have not innovated with this product as they are targeted at such people. Those who don’t have income and won’t spend much.”

A better option is to opt for a regular credit card, he said. “If you are going to use a credit card, it is better to use one that offers rewards on regular spending.” However, note that many banks do not offer credit cards to 18-20 year olds whose Have no income and a credit score even if they are ready to pledge FD.

The minimum age to apply for a card at most banks is 21, which may limit your options for getting a regular credit card in the early years of college.

credit card or micro loan

Some fintech companies, such as PayCrunch and Slice, offer credit lines to students bundled with attractive reward offerings. Compared to credit cards, lines of credit are easier to obtain as they do not require collateral and the latter offer better rewards.

But, the two options should not be confused as they have different structures. While there is a credit limit attached to a credit card, which is essentially the maximum amount that one can borrow and is not a loan per se, a line of credit is a loan that allows the borrower to sign-up for the service. is approved in minutes (see table).

Paycrunch offers a UPI-based credit line to graduating students and they can use it for any merchant that uses a QR code to accept payments. Aman Bhayana, Founder, PayCrunch says that they decide the credit line based on the pocket money the student receives. “Our algorithm accesses an applicant’s bank savings and payment history and SMS inbox (for Android users) to tell us how much allowance they receive regularly from their parents. Based on this, we distribute maximum credit line,” says Bhayana.

The total bill has to be paid in full before the end of the month and any default attracts a penalty of 2-3% of the outstanding amount. Bhayana says that they do not charge interest rate yet as they are operational for only three months but will soon start charging 2% monthly interest.

Currently, players offering credit lines to students do not offer an interest-free window.

Many argue that a credit line can be used by customers with no credit history to create a credit line, which can be used to obtain a credit card. However, experts advise against credit lines altogether. “Line of credit is a type of soft personal loan. A credit line always comes with a cost and students should not bear the interest burden especially because they do not have an income,” says Ansari. The credit report preparation process takes six to seven months, which means That’s you will need to use your credit line only to get a credit report and pay the associated interest for the period.

use with caution

A credit card can be a good starting point for a student to develop healthy credit practices. On the other hand, they can become indebted at a young age if not used judiciously. Interest on rollover balances on credit cards can rise to 42-45% annually, which is the highest of any loan excise duty.

If students use credit cards judiciously, they can quickly build up a healthy score that will later help them negotiate better interest rates on education loans for higher studies or other loans once they start earning. .

Chetanwala says that if the intention is to start with plastic only, prepaid cards are a better option for students.

post your comment
first article