Reality Of Credit Cards

Summary

This video script exposes the hidden risks of using credit cards, particularly No Cost EMI schemes, which are not as beneficial as they appear. It explains how banks profit from credit card transactions, interest rates, and penalties, leading consumers into debt traps. The script also highlights how EMI options, while appearing to offer convenience, often come with hidden costs, such as GST and processing fees. Viewers are warned about the dangers of using credit cards irresponsibly and are given practical advice on managing finances, including paying off balances in full and avoiding unnecessary purchases to prevent falling into debt.

Takeaways

• 😀 No Cost EMI is misleading and is not truly interest-free, as it includes hidden charges like processing fees and interest that increase the total product cost.
• 😀 Banks push credit cards to increase their revenue through transaction fees, late payment charges, and high-interest rates, taking advantage of consumers' financial habits.
• 😀 Credit cards often make people overspend by increasing their purchasing power, leading to debt traps, especially for people with lower salaries.
• 😀 Credit card transactions involve multiple parties (issuer bank, acquiring bank, network company, and shopkeeper), each of which benefits from fees and percentages of the transaction.
• 😀 Late payments on credit cards can result in exorbitant penalty fees, and making only minimum payments traps individuals in a cycle of never-ending debt.
• 😀 The interest rates on credit cards can be extremely high, reaching up to 36% annually, which makes it important to avoid carrying balances over time.
• 😀 No Cost EMI offers are often used to sell outdated or unsold products quickly by making it easier for people to purchase items they may not afford otherwise.
• 😀 Credit card companies often hide charges such as GST, interest, and service fees, which increase the overall cost of the products purchased through EMI.
• 😀 Some credit card companies offer seemingly 'interest-free' EMI options, but they compensate by increasing interest rates later in the payment cycle.
• 😀 Consumers should only use credit cards for purchases they can afford to pay off in full, avoiding the temptation to buy non-essential items on credit.
• 😀 If trapped in credit card debt, consider consolidating with a personal loan at a lower interest rate, as paying only the minimum on a credit card will never fully pay off the balance.

Q & A

What is the main issue with 'No Cost EMI' that is discussed in the transcript?

The transcript highlights that 'No Cost EMI' is often misleading. While it suggests there is no interest, the hidden costs like processing fees, GST on interest, and the way the price of products increases make it a costly option for consumers.

How does the bank benefit from giving out credit cards?

Banks benefit from credit cards in several ways, such as transaction fees, late payment charges, cash withdrawal fees, and interest charges on EMI options. They also earn from partnerships with merchants through cashback, reward points, and other promotions.

Why do banks push for people to use credit cards, especially with offers like 'No Cost EMI'?

Banks push credit card usage because it increases their profits through transaction fees, interest charges, and penalties. The 'No Cost EMI' option helps boost sales by making products more affordable through deferred payments, leading to higher overall profits.

What is the role of network companies like Visa, Mastercard, and Rupay in credit card transactions?

Network companies like Visa, Mastercard, and Rupay facilitate transactions by verifying and approving details between the issuer bank, acquiring bank, and merchant. They ensure that the data remains secure and enable global transaction compatibility, though they also charge a fee for their services.

How do interest rates affect credit card users in the context of 'No Cost EMI'?

'No Cost EMI' is a deceptive term, as the interest charges are often added into the product price upfront, and users may also face additional charges like GST on the interest. This increases the overall cost of the product, despite appearing as interest-free.

What are some hidden costs consumers might face when using 'No Cost EMI'?

Consumers might face hidden costs such as loan processing fees, increased product prices (due to interest being added), and GST charges on the interest amount. Additionally, cashback or bonus offers could be used to recover those hidden interest costs.

Why do shops sometimes refuse or ask for extra money when customers use credit cards?

Shops may refuse or charge extra when credit cards are used due to transaction fees they incur from banks. These fees can be as high as 1-2% of the total transaction, which the shopkeeper may pass on to the customer.

What is the financial impact of paying only the minimum payment on a credit card?

Paying only the minimum payment on a credit card leads to prolonged debt repayment, as the interest charges accumulate. This results in paying much more than the original amount owed, especially due to high interest rates (around 24% per year).

What advice is given in the transcript about how to properly use a credit card?

The transcript advises using a credit card only for purchases you can afford to pay off in full. It emphasizes avoiding late payments, never using the minimum payment option, and staying cautious about high-interest rates and hidden fees.

What are the risks of using credit cards for non-essential purchases like iPhones or luxury goods?

Using a credit card to buy luxury goods like an iPhone can lead to falling into a debt trap, especially if the purchase exceeds your ability to pay. The ease of credit encourages buying items that aren't necessary, which may end up costing more due to high interest rates and additional fees.