You will end up paying high cash withdrawal fees and prepayment charges.
You use payment cards for all your purchases. Whether it’s paying at refueling centers, paying for electricity, watching your favorite Hollywood movie on NetFlix, or depositing your child’s school fees, you make the payment by card.
There are times when you end up spending all your money on your debit card and draining your paycheck account. Additionally, sometimes you are faced with a situation where you have no choice but to use your credit card to withdraw money from ATMs.
But keep this in mind that using a credit card for ATM cash withdrawals is not a wise move. You will end up paying high cash withdrawal fees and prepayment charges.
High upfront costs
Naveen Kukreja, CEO and co-founder, Paisabazaar.com, says when it comes to ATM withdrawals, it’s best to avoid credit cards. “They come with a cash advance fee of up to 3.5% of the amount withdrawn, with the exception of finance charges of up to 47% per annum.”
So if you withdraw, say Rs 10,000 using your credit card, you will have to pay Rs 350 as a prepayment charge, which in all respects is a big amount. If you withdraw money with your debit card, even at other bank ATMs, you won’t have to pay such high fees. The fees for withdrawing cash from ATMs of “other banks”, which levy bank taxes, range from Rs 25 to Rs 30. And you will incur higher finance charges in a year depending on how much you withdraw.
Assess your financial health
Before owning a credit card, you need to assess your monthly income and assess your overall financial health. As credit cards have a penchant for spending more money because you don’t have to dig your pocket for hard cash. This habit can lead to a buildup of unwanted loans, which could impact your credit score due to not paying dues on time.
Play Safe Online
There are a few people who prefer debit cards for all online payments. In the event of fraudulent activity, debit cards may be more secure as they have a cap on the ATM limit and the transaction amount per day. “Credit cards, on the other hand, can be used to the maximum in a single transaction, although most banks typically call customers to confirm expensive transactions,” Kukreja added.
You also get these added benefits for using credit cards instead of debit cards. You get an interest-free period of up to about 50 days, most credit card companies allow an interest-free period of 45 days.
Besides the attractive reward points, cashback offers, discounts on purchasing particular products on e-commerce websites are other features that you don’t get with a debit card. If you are purchasing a product on a no-charge EMI, you will need to have a credit card as debit cards do not come with the option of no-charge EMI.
Habit will help you save more money in the long run. “In addition, regular use of the credit card, preferably within 30-40% of your authorized credit limit, and paying them on time by the due date would help build your credit score,” did he declare.
A la carte frauds
Ritesh Bhatia, director of cybercrime investigations at V4Web Cybersecurity, said that if your debit card is cloned or misused, the maximum damage to a person or a bank will be Rs 20,000. “We have witnessed a huge increase in card cloning fraud. Skimming and cloning are increasingly common. Security at ATMs is also not up to par, as fraudsters can install cameras and card skimmers, ”he added.
Avoid more exposure
Srikanth Meenakshi, co-founder of FudsIndia.com, says for security reasons one should use a credit card to pay daily expenses and also to pay utility bills. He says, “When you make a card payment, your card is exposed to private merchants. This makes your crucial financial data “leaked” to fraudsters who are “virtually” on the prowl and are in a waiting position. The more you use your debit or credit card, the more exposed you are to likely money theft. This could lead to financial losses in the future if you are the victim of phishing, skimming or any other case related to card fraud, he explained. And, credit cards offer a repayment period of around 45 to 50 days depending on the company.
Some industry experts claim that credit and debit cards are the same and serve the same purpose as they allow and facilitate easy money transactions. Mrutyunjay Mahapatra, CEO of Syndicate Bank, says credit and debit cards appear to be the same when it comes to their use. “However, as credit card companies make loans, they come with tighter security and speed controls.” For credit cards, banks deploy a reminder system for large transactions and whenever they come across a suspicious transaction. While in debit cards, there is no such ease.
According to Mahapatra, in most cases, consumers lose money in “multiple debits of small amounts”. “The crooks mainly steal between 500 and 1,000 rupees in card fraud cases. They are stealing the sum of money that does not require filling the prosecutor’s office, he said. “Apart from that, credit cards come with an advanced algorithm to discover (transaction) patterns,” he explained.
Why fraud happens
One of the main reasons for the emergence of these frauds is the extension of the reach of debit cards to the lower layers of the social pyramid due to Jan Dhan Yojna and other financial inclusion programs. “In most of these cases, people lose money because of password breaches. It would be wrong to say that they are losing money because of system hacks.
Scammers trick consumers in a variety of innovative ways. “In most cases, they call and pretend to be bank agents. They also claim that they are calling from the police department, lottery agencies or the government direct benefit transfer service. “
Nitin Bhatnagar, associate director of the PCI Security Standards Council – dedicated to card payment data security – believes consumers need to be prepared for increased threats of data theft as there has been a substantial increase in the number of digital payments.
In October 2016, it was reported that the security of up to 32 lakh cards has been compromised. And some consumers then complained that their money was being withdrawn in China. Of the 32 lakh cards, 26 lakh belonged to the Visa and MasterCard category, while the remaining 6 lakh belonged to the RuPay and other cards category.