India has seen an increase in the number of credit cardholders. The issuing company sanctions these cards, and everyone may not qualify for them. Some reasons for ineligibility include a lower credit score, risky employment, inadequate income, or insufficient credit history.
The good news is that several institutions now issue a credit card against your fixed deposit (FD). The FD is used as collateral, and the issuing company offers a credit limit between 80% to 90% of the deposit amount.
Understanding fixed deposits
Before moving on to the advantages of applying for a credit card against your FD, it will be beneficial to understand its meaning. An FD is a fixed-income security issued by banks and non-banking financial companies (NBFCs). You invest the amount for a particular period at a pre-determined fixed deposit interest rate. So, you have an idea about the total maturity value at the time of opening the FD.
You can apply for an FD online, as the document requirement is minimal, and the entire procedure is quick and hassle-free. You can check the fixed deposit eligibility norms online before starting an account.
Here are two scenarios wherein you can apply for a credit card against your FD:
- If you do not meet the eligibility criteria
If your earnings are low, your credit score is less, or you are unable to provide income proof, you may qualify to get a credit card. Applying for a card against your FD will help your chances of approval. Additionally, when you use the card responsibly, you can boost your credit score, which can help improve your eligibility in the future.
- If you want an affordable option
As the credit limit is secured against the Fixed Deposit, the issuing company may levy a lower interest rate compared to regular credit cards. This can help you save on interest. Moreover, credit card companies may not charge any joining and annual fees when you apply for a secured card. So, this helps you reduce your costs over the long term.
Before you apply for a credit card against your deposit, remember that the company will use the principal and the interest based on the FD rate to recover any unpaid dues. Also, the company attaches the FD to the credit card, which means you cannot prematurely withdraw the amount in case you need funds to meet an emergency.
If you wish to earn competitive returns from FDs, NBFCs like Mahindra Finance offer them at high interest rates. You can visit its website and apply for one.