Credit Card against FD are becoming popular as credit cards serve as a convenient financial tool like your “friend in need”, providing you with the ease required liquidity to manage your expenses seamlessly. Credit Cards open doors to a world of convenience, granting you the flexibility to tackle a diverse range of expenditures. Additionally, Credit Cards help you build your credit history, which greatly increases your chances of getting a loan at the time of need. If you fail to fulfill the eligibility criteria to get a credit card, you can get a Credit Card against Fixed Deposit (FD).
what is a credit card against FD?
Not everyone might be eligible for traditional credit cards, especially those who don’t have a strong credit history like people who don’t have much of a record of taking loans or have a bad credit score. This is a huge setback for loan seekers or credit card lovers. To overcome this problem, banks and financial institutions in India have introduced credit card against FD as an option. This allows you to receive a credit card by pledging your FD as collateral.
Credit cards against FD are slightly different types of credit options compared to traditional ones because they have different kinds of eligibility criteria & usage parameters so these types of Credit Cards are also known as Secured Credit cards.
Eligibility criteria
To get a Credit Card against FD you need to fulfill :
Age requirement: the person must be between 18–65 years of age.
Minimum FD amount: the minimum Fixed Deposit amount required to avail a Fixed Deposit Credit Card varies from bank to bank. Normally, the minimum deposit amount can be a float from ₹ 10,000 to₹ 25,000 or more for Credit Cards with higher credit limits (the amount depends on the bank’s policies and the features of the credit card, banks can make independent decisions in these matters).
FIXED DEPOSIT ACCOUNT: to apply for an FD-based Credit Card you must have a Fixed Deposit account in the bank from where you want to get a credit card. The Fixed Deposit amount will serve as collateral against the Credit Card.
CITIZENSHIP AND RESIDENCE: the person should be a Resident Indian Citizen. If the person is an NRI then he must show a valid residential address proof of India.
KYC COMPLIANCE: one must comply with KYC rules set by the bank
How does a credit card against FD work
Indian financial institutions have introduced credit cards against FD to make financial services more convenient for customers. It enables them to get a credit card by depositing a certain amount in a fixed deposit account. The amount deposited works as collateral for the credit card, reducing the risk for the credit card issuer bank to grant the customer a credit card despite having a low or bad credit score or no credit history.
These credit cards issued by banks work just like a traditional credit card, providing you with a limit that is pre-determined which you can use for various transactions and expenses without any hassle.
Benefits of FD-based credit card
- EFFORTLESS AND GUARANTEED APPROVAL: As the credit card is backed by an FD, approval is almost easy & guaranteed for those individuals with low or no credit history.
- ATTRACTIVE INTEREST ON FD: A Credit Card on FD benefits the users by allowing fixed deposits to continue earning interest while they enjoy the Credit Card benefits without disturbing their savings budget.
- HELP TO IMPROVE CREDIT SCORE: If the user responsibly uses the Credit Card & re-pays Credit Card bills from time to time, it will help them build a positive impression and credit history followed by an improvement in credit score
- LOWER FEE: As compared to regular Credit Cards, Credit Card issuers usually charge lower joining fees and annual fees on Credit Card against FD
- HIGHER CREDIT LIMIT: Normally, a bank offers 75% to 85% of the deposit amount as the credit limit on these types of cards, so, the higher the FD amount, the higher will be your credit limit, as simple as that
- FIXED DEPOSIT CONTINUITY: Your FD continues to act as an investment and also provides returns. There is no interruption in the interest payment on your FD as long as the FD is pledged as collateral with the Credit Card issuing bank
- REWARD POINTS AND CASHBACK: Credit Cards usually offer reward points, cashback & more benefits enhancing your spending experience, also banks issue different types of credit cards e.g. shopping, traveling etc to enhance users’ experience.
Documentation:
Only PAN & Aadhaar card are required
Fixed deposit income:
One of the best aspects of a credit card against a fixed deposit is that your FD continues to earn interest even if pledged as collateral with the card issuing bank during the credit card tenure.
Fixed deposit interest rates:
FD interest rates are depending on the prevailing bank rates and the FD tenure chosen. It is different for every bank.
what happens if you fail to pay dues on credit card against fixed deposit
If the user fails to pay credit card dues, the issuing bank deducts the outstanding amount from the FD amount pledged as collateral. If the user does not pay outstanding credit card dues in full on time, the card issuer deducts the outstanding amount as interest.
Want to know more about credit card against fixed deposit
A credit Card against FD is a great option that helps you continue earning interest on your FD and enjoy other benefits. Whenever you are interested in applying for such a credit card, you can check with different popular banks like HDFC Bank, SBI, ICICI Bank, Axis Bank, Kotak Mahindra Bank, etc. They provide facilities without any conditions and without taking your income or employment information. With such an FD-based credit card, you can start building and improving your credit history and open the door to future eligibility for other credit-based schemes like loans.
FAQs
What is collateral and how does it work?
Collateral is a valuable asset that a borrower pledges to a lender as security for a loan. Collateral acts as a guarantee that the lender will be repaid if the borrower defaults on the loan. If the borrower doesn’t repay the loan, the lender can seize and sell the collateral to recoup their losses.
Is Credit Card against FD a good option?
An excellent aspect of the Credit Card against Fixed Deposits is that the FD continues to earn interest even while it is pledged as collateral with the card-issuing bank, throughout the credit card tenure
Can I withdraw FD against a credit card?
No, you can’t close the FD midway. However, you may opt for partial withdrawal. The amount of money you can withdraw would depend on your credit limit on the card and your deposit amount
What are the disadvantages of loan against FD?
Disadvantages of Loan against FD
1. The loan amount will be determined and limited by the amount in your FD
2. The loan term can’t be greater than the term of the FD
3. In case you are unable to repay, the bank can foreclose the FD to recover the loan amount
4. Defaulting on the loan against FD can impact your credit score as well
Does credit card against FD increase CIBIL score?
Yes, you can build a good CIBIL score over some time. If you responsibly use your Credit Card & re-pay Credit Card bills from time to time, it will help you build a positive impression & credit history followed by an improvement in your credit score
Are regular credit cards and credit cards against FD same?
No, not exactly the same. Credit Cards against FD is a slightly different type of Credit Card compared to traditional ones because there is a different eligibility criteria & usage parameters.
