Sensible credit card use offers perks
The consumption behaviour of Bangladesh's growing middle class has made credit cards popular in recent years with a number of banks offering a wide range of discounts and cashback facilities on purchases.
The plastic cards have been synced with a large number of shops, enabling payments for different goods and services to be made in the form of equated monthly instalments (EMI).
An EMI is a fixed amount of money paid by a borrower to a lender at a specified date each calendar month. This means a credit cardholder can avail a fridge or television whenever required in a much easier manner than through other modes of payment.
The plastic money also drew a lot of attention from clients when the government imposed strict restrictions on public movement between the last week of March and May in order to keep the coronavirus pandemic at bay.
Clients bought their required products, including food, while sitting at home during the lockdown. The country is now going through another strict round of restrictive measures, which has further increased the demand for the digital product.
The credit card business of banks will increase manifold in the near future to keep up with the country's economic growth, said HM Mostafizur Rahaman, head of retail banking of Dhaka Bank.
The number of credit cards stood at 17.14 lakh as of February this year, up 15.50 per cent year-on-year, showed data from Bangladesh Bank.
Loans through purchases made on credit increased 24 per cent year-on-year to Tk 1,509 crore.
Banks offer businesspeople and salaried employees of reliable organisations the enjoyment of credit card facilities, he said.
Even people with a minimum salary of Tk 20,000 can enjoy a credit card from lenders.
Issuer banks fix the credit ceiling based on the monthly income of clients.
Clients normally enjoy a credit ceiling at least two or three times their monthly income.
Availing a credit card requires providing banks information regarding income sources alongside a tax identification number (TIN).
Dhaka Bank has already inked deals with more than 1,000 shops to provide discounts, cashbacks and the EMI facilities to its credit cardholders, said Rahaman.
Clients should follow the payment methods for the card bills to secure all the benefits of plastic money, said Mahiul Islam, head of retail banking at Brac Bank.
Credit cardholders usually get 45 days to pay bills against purchases.
This timeframe centres around loan statements. Each bank generates loan statements on a specific date of a month. Clients are allowed 15 days from the generation of loan statements to pay the bill against purchase of goods and services.
No interest is charged if clients pay the bill within this time.
If clients cannot make the payment within this timeframe, a late repayment fee of Tk 500 to Tk 700 is imposed, after which a 20 per cent interest is charged on what is overdue.
The interest rate on credit card is higher than that of other loan products offered by lenders.
The operational and monitoring costs for the card are too high compared to other loan products of lenders, increasing the rate of interest to a large extent.
The overdue fund gradually becomes default ones as per the central bank common rules on loan classification.
The credit cardholders can also avail different benefits if they use the product in an efficient manner.
For instance, a platinum credit cardholder gets access to lounges at international airports of different nations.
Such credit cards are normally offered to high-value clients of banks.
The majority of local banks now use three global brands – Visa, Mastercard and American Express -- while issuing credit cards.
Clients can even enjoy cashbacks or discounts while traveling abroad, subject to arrangements provided by their respective brands.
There can be implicit charges on credit card usage, said Hussain Ahmed Enamul Huda, an assistant professor of the finance department at the University of Dhaka.
"So, clients must calculate the EIR (effective interest rate) on credit cards," he said.
Chequebooks are issued against credit cards, so one can write down cheques against cards, he said, adding that no interest is charged up to a certain period of time on cheque-based payments.
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