If you are in the market looking for a credit card, you are probably prepared to shell out an annual fee for the same. But why should you pay a fee when the market has zero-fee credit cards too? While paying a fee may entitle you to extra benefits, a zero-fee credit card may suffice if you do not use it a lot or are a new user. We explain why but first let’s start with the basics.
Types of credit cards
Credit cards give you free credit for 45-55 days after which it charges a monthly interest. Apart from this, there is an annual fee to pay, regardless of your usage pattern. Zero-fee credit cards, on the other hand, don’t levy any annual fee.
Then there are credit cards that are sandwiched between an annual fee and no-fee cards. These cards charge an annual fee initially but waive it off eventually after the user crosses a certain threshold of spends. For instance, State Bank of India’s (SBI) SimplyClick card charges an annual fee of ₹499, which is reversed if you spend ₹1 lakh through the card in a year. HDFC Freedom Credit Card charges ₹500 as annual fee but waives it off after you cross the ₹60,000 spending threshold in a year.
“Even in case of premium credit cards that involve a relatively higher annual fee, card issuers usually offer annual fee waiver if you spend beyond the minimum threshold amount in the previous year," said Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.com, an online marketplace for financial products.
Some banks also waive the annual fee against a security deposit. For instance, Axis Insta Easy Credit Card is issued against a minimum fixed deposit of ₹20,000, and SBI Card Unnati against a minimum FD of ₹25,000.
I like plain vanilla
Mrin Agarwal, financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra, said, “A cashback, no-fee credit card which offers decent benefits is a good choice. Many fail to even redeem rewards and benefits of credit cards, so it makes sense to go for no-fee cards and get a cashback that reduces your amount due. Those who want to go for an annual fee card must see if the rewards they get in return are worth a high annual fee and whether they are actually using the rewards and benefits."
Go for zero-fee cards if you are using a credit card for the first time and figuring out how it works, how often you need to use it and the like. “This can be the stepping stone to building your credit score and history, and your pathway to more premium and specialized cards. It would also be an inexpensive way to increase your credit limit," said Navin Chandani, chief business development officer, BankBazaar, a loan aggregator.
Also, if you use your credit card sparingly, you should pick a plain-vanilla, zero-fee credit card. “No-fee credit cards are best for users who seldom use credit cards for making big-ticket expenditures," said Gaurav Chopra, founder and chief executive officer, IndiaLends, a financial technology startup.
If you have a bad credit score and are trying to repair it, go for a no-fee card and use the card for nominal expenditures.