Due to the tremendous surge in e-commerce and contactless payment systems, the demand for credit cards has increased. An FD credit card lets you borrow money against a fixed deposit in the time of emergency.
FD credit cards don’t require an adequate income or a high credit score. Here’s a quick overview of the differences between fixed deposit credit cards and a regular credit card.
What is a Regular Credit Card?
Regular credit cards are unsecured cards that do not require any collateral. They typically offer a higher credit limit based on the following parameters:
- Your creditworthiness
- Your income
- Your credit score
These cards come with various rewards, cashback offers, and purchase protections, but they also carry higher interest rates and potential hidden fees.
How Does a Regular Credit Card Work
Credit cards let you borrow a certain amount of money based on the approved credit limits. Depending on the income and credit history, the card issuer sets this limit. You should keep track of the following parameters when you use a card:
- The outstanding balance to pay each month
- The due date by which you need to pay it
Wondering what happens when you miss the due date? You’ll have to pay penalties along with the outstanding amount. As you keep borrowing funds from your card, the approved limit keeps decreasing.
Once you clear your dues, the credit limit will be restored. Another point to note is that paying the minimum amount due is possible. However, the issuer may levy interest on the remaining outstanding amount. So, it’s a best practice to clear your dues on time and in full.
You can get a regular credit card by maintaining a credit score of over 750. Apart from that, an adequate regular income is also a primary criterion, which differs from bank to bank. Some issuers may also approve your card application if you have a score of 700 or above.
What Are FD Credit Cards?
FD credit cards are secured cards that require the holder to maintain a fixed deposit with the issuing bank. The FD acts as collateral, typically allowing the cardholder to access a credit limit of 75% to 90% of the deposit amount. These cards are particularly beneficial for individuals with low credit scores or no income proof, making them easier to obtain.
How Does It Work
An FD card works the same as a regular credit card. You can take the credit and pay it later.
The major difference is if you don’t have an FD account, you can’t avail it. As mentioned, your fixed deposit acts as your collateral while borrowing credit.
If you don’t clear your outstanding dues for a long time, the issuer can recover the amount from your fixed deposit. That said, the issuer will inform you before taking such actions.
Features of a Secured Credit Card
Here are a few attributes of these cards:
- The process doesn’t involve a lot of documentation, making it a simple process
- Most of the banks provide an interest-free period for FD cards between 48 and 55 days
- While enjoying the perks of secured credit cards, customers also earn interest against the fixed deposit
- The credit card limit can go up to 75% – 85% of the total fixed deposit amount.
- It gives rewards and cashback against purchases like regular cards
Benefits And Drawbacks
Compared to a regular credit card, FD credit cards have low interest rates. Here are some other facts to note:
- It has an easy application process
- It prevents account holders from breaking their fixed deposit during emergencies
- If you’re unable to repay the borrowed amount, you can withdraw your FD and clear the dues entirely
- Timely repayment and responsible usage of credit can help you build a good credit score and a positive credit history
One of the significant drawbacks of these cards is that issuers offer a low credit limit. Apart from that, it also has a lower reward system.
FD Credit Card Vs Regular Credit Card
Here’s a tabulated comparison of how FD cards differ from FD-backed cards.
Parameter | Regular Credit Card | Credit Card Against FD |
---|---|---|
Collateral | None | Secured against a fixed deposit |
Credit Limit | Based on creditworthiness | 75%-90% of the FD amount |
Income Requirement | Requires sufficient income | No minimum income required |
Credit Score Requirement | A good credit score is needed | No credit score necessary |
Interest Rates | Higher interest rates | Lower interest rates |
Documentation | Extensive documentation required | Minimal documentation needed |
Withdrawal Restrictions | No restrictions | Cannot withdraw or close FD until the card expires |
FD cards are a good way to build financial history over time without worrying about high interest rates. While there are many secured cards in the financial marketplace, you can choose the FD-backed One Credit Card to enjoy great offers while building your credit score.
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