Reasons for High Interest Rates on Credit Cards in India

With the constant growth of science and technology in various fields, most parts of the world have witnessed massive changes in several sectors which include the banking domain. Among a plethora of services provided by the banks, credit card facilities is known to be one of the most significant services offered by majority of the banks all over the world.

Credit card facilities enable the users to make both online and offline payments with ease and simplicity. These cards can be used to purchase commodities, pay for services, automobiles, fuel and so forth without any interest rate. Banks offer a wide range of cards which can be chosen according to the requirements and eligibility of the customers. It is possible to apply for these cards through online and offline media.

There are basically two types of cards which include the Visa and Master card. Both these cards are issued through the banks. There are various ranks for these cards which include Gold, Silver and Platinum cards. The credit limit for these cards varies from one another.

Some Basic Features

Eligibility criteria: These cards are issued by the banks or companies based on the eligibility criteria of the customers. Card users require a minimum level of income to apply for credit facilities. This criterion varies from one bank to another. Steady source of income, minimum age limits and repayment capacity are some of the factors which determine the eligibility of the applicants.

Cost: The applicants or card users need to incur the basic cost while applying for these cards. Every year, the card users need to pay an annual fee to the company or the issuing bank.

Add on card: These cards are issued to the dependents of the card holders. However, no additional credit limit is offered on these cards. The total limit is divided between the main card and the add-on card.

PIN: It is also known as the Personal Identification Number. It is basically a combination of numbers which serves as a key. It can be used to withdraw money from ATMs.

Hike in Interest Rates

The interest rates on credit cards have risen substantially in the past few years. There are many reasons for the rise in interest rates.

Rising defaults: One of the main reasons for the rise in interest rates is due to the rise in default payments. So banks charge higher interest rates on these loans to reduce loss. Most of the leading banks in the country have hiked the interest rates to more than 3.40 percent.

NPA of the banks: Due to the lack of repayment, the NPA or the Non Performing Assets of the banks have been substantially increasing. This has initiated most of the banks to increase the interest rates on these facilities.

Different banks offer different interest rates on these facilities. Some private sector banks also consider customer behaviour before setting the prices and interest rates of these cards. Today, the government has initiated several steps to slash the interest rates on these cards.