What is an FD-backed credit card
An FD-backed credit card is a secured credit card which is offered against a fixed deposit by the bank. Unlike regular credit cards, which are extended based on your income, credit rating, and payment history, this card is extended by using your FD as collateral. The credit limit is usually 75% to 90% of the deposited value. This model is more convenient for individuals having no or low credit score as bank risk is insured by the deposit.
Advantages of FD-backed credit cards
The largest benefit of an FD-backed card is that it allows you to build or rebuild your credit history. By making timely payments and keeping credit utilization low, you can enhance your creditworthiness in the long run. Additionally, such cards typically offer facilities similar to regular credit cards, such as reward points, cashback, and discounts. Since the card is secured by a fixed deposit, the process of borrowing is faster and is less reliant on evidence of income or credit, and thus best suited for first-time borrowers.
Flexibility and emergency support
FD-backed cards provide a secure financial cushion in times of emergencies. You can utilize the card when you are in need of cash without ever breaking your fixed deposit. While your FD continues to earn interest, and your savings are augmented even when you use credit. Even most banks facilitate you to convert large purchases into EMIs, so repayment is eased. The deposit stays unless you default, and the bank re-considers dues from the FD base. This makes the card adaptable but secure.
Reduced risks for banks and users
For the banks, credit cards secured by FD reduce the risk of non-payment of charges since they are backed by collateral. For the customers, they reduce the risk of card rejection at the time of application. Even housewives, students, or individuals with non-salaried incomes can avail themselves of this facility if they can open an FD. In contrast to personal loans or overdraft, these cards also enjoy the advantages of online payments, conversion into EMI, and reward points. It's a convenient way of entering the credit system without jeopardizing unnecessary money.
Who should apply for an FD-backed card
FD-backed credit card is best for first-time users of credit, those with low credit scores, or those whose normal credit card applications were rejected. It's also handy for those who want to control their spending since it's tied to their FD balance. For beginners or students starting their career, this card is an excellent starting point towards establishing a good credit history without too many eligibility barriers.
FAQs
1. Can I withdraw my FD after taking an FD-secured credit card?
Yes, your FD continues to earn interest, but you cannot withdraw or encash it until the card is terminated or the dues are settled.
2. What happens if I default on FD-backed credit card?
The bank adjusts the outstanding in your fixed deposit, reducing the lender's risk.
3. Is the interest rate of FD-backed credit cards lower than regular credit cards?
Interest rates are comparable to normal cards, but there is simpler approval, and users enjoy secured usage and guaranteed acceptance.
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