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credit card|banks|
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00:00Hello friends, I know you guys are expecting a video on Pegasus Candle but I would like to wait
00:04for a few more days. This is a very new news and new revelations are still coming every day.
00:09So let's wait for a few more days. After that a video will come on that topic. In today's video,
00:14I would like to continue the series of financial education. The topic of today's video is credit
00:18cards. What are credit cards? How do they work? How do these credit card companies make their
00:24money? And the most important question is should you use a credit card yourself or not?
00:30What are its advantages and disadvantages? Let's know. Let's understand with an example.
00:36Suppose you are starting to study in school and suddenly a pandemic comes. All your studies are
00:41now done through online classes. But to attend these online classes you need a smartphone and
00:46you do not have any smartphone. You have to buy a smartphone urgently. But you do not have money
00:51in your bank account to buy it. So you ask your parents to transfer some money to your bank account.
00:56But it will take 2-3 days to transfer that money. But you have to buy a smartphone tomorrow because
01:02you have a class tomorrow. So what should be done? In such a situation, you can buy a smartphone using
01:09a credit card right away and pay for it later. So essentially a credit card is a card that helps
01:15you buy things instantly. But you can actually pay for them later. You can do it at the end of the
01:21month. What usually happens? You have money in your bank account. You withdraw cash from the bank
01:25account and make the payment using cash. The other option is that you can use a debit card which is
01:29directly linked to your bank account. When you make a payment using a debit card, the money is directly
01:34withdrawn from your bank account and given to the other person. But what happens in a credit card is
01:39that the bank makes the payment on your behalf. Whoever you are making the payment to, you pay the bank at
01:45the end of a month. Whatever is the monthly expenditure of that credit card, you can also
01:50take more than one month to pay the amount to the bank. But then the bank charges a very high interest,
01:54just like in loans. So basically consider a credit card as a mini loan type thing.
02:00Usually when you take a loan in cash, you get a loan in cash. But here, in lieu of a loan,
02:06the bank is giving you a plastic card, on which your name is written. A unique number is written
02:11so that this card can be uniquely identified. There is an expiry date. How is the payment
02:16being processed? Now there are some companies for payment processing, like Visa and MasterCard.
02:21These are the two most popular companies. They are basically providing the infrastructure behind
02:25so that credit card transactions can be done. The bank that issues you a credit card is different
02:30from Visa or MasterCard. Both these companies are only payment processing companies and there is a
02:35magnetic strip on the back of the credit card and the CVV number is also written on it.
02:39It is very important to keep it safe and keep it secret, otherwise you can be defrauded.
02:44Now friends, every credit card has a credit limit that how much money you can spend from that credit
02:49card without paying back the money to the bank. If the limit is $30,000 then you cannot spend more
02:54than $30,000 from that credit card. What is this credit limit? It depends from bank to bank.
03:00Which card have you bought and the bank sees what your salary is? What is your credit score?
03:05On that basis, it judges how much your credit limit should be set.
03:09If the bank sees that your salary is quite high, you can afford to pay back more money to the bank.
03:15So the bank trusts you more. That is why your credit limit is higher.
03:18Now credit score is also a very interesting thing. If you do not pay your credit card and loan payments
03:23on time, the bank will feel that giving you money is very risky. You never know when you will not be
03:29able to return the money. The bank has to face risk while giving you a credit card or a loan.
03:35To judge this risk, the bank has created its own grading system. The bank grades you. This grade is
03:41given between 300 rupees to 900 rupees and it is called credit score. If your credit score is between
03:46750 rupees and 900 rupees then it is a very good credit score. This means that the bank can trust you
03:52and the risk is quite low. But if your score is around 300,400 then the bank cannot trust you at all.
03:58So your credit score is calculated by looking at your old track record and on that basis the bank
04:03judges whether the credit limit for you should be kept high or low. In fact, you should be given a
04:08credit card or not. Now what is the benefit for you if you use a credit card? One advantage I have
04:14mentioned in the beginning of the video is that if you want to buy something now but want to pay for
04:18it at the end of the month, then the benefit is for immediate expenses. The second big advantage is
04:24that using a credit card is less risky as compared to a debit card. If any fraud happens with you,
04:30then in the case of a debit card, the money will be directly taken out of your bank account and sent
04:35there. But in the case of a credit card, your bank, your credit card issuer will pay on your behalf.
04:40And if any fraud is happening, then they can investigate and see and if actually fraud has
04:45happened, then they can return your money. What happens in India is that if any fraud happens with
04:49your credit card, then the customer's liability i.e. your liability is zero. If you report that
04:55fraud within three days. So basically the bank is taking all the risk of paying somewhere.
05:00The third big advantage is the rewards you get when you use a credit card.
05:05Now different banks, different credit cards have different reward systems. In some you get cashback.
05:11In some you get big discounts. In some you get insurance. For example, if you have an accident,
05:17you get insurance for it or you start getting travel insurance for free with the credit card.
05:22It depends on your credit card what benefit you get for using it.
05:27But today almost every credit card has some kind of reward point system.
05:32You can collect points and later exchange those points to buy something big.
05:37Now, to decide which credit card to use, you mainly have to keep three things in mind.
05:42The first is the bank which is issuing your credit card.
05:44Whatever is the system of reward points, the fees being charged by the bank and the hidden fees,
05:51it is mostly decided by the bank.
05:55Second is which credit card you are using which is being offered by that bank.
06:00You get more rewards in some high-level credit cards.
06:04You get better insurances and you also get more points.
06:07But often their fees are also high.
06:09And the third thing to keep in mind is which payment network is used in that card.
06:13As I told you, Visa and MasterCard are the two most common payment networks.
06:18But apart from this, there is also American Express Diners Club and Rupay.
06:22However, both Visa and MasterCard are so common today that there is a negligible difference between the two.
06:28But if you look at American Express, there is more difference in comparison between these two
06:32because Visa and MasterCard are accepted at most places.
06:35American Express is not accepted.
06:38But the advantage of American Express is that its rewards are much more.
06:42I had mentioned that banks mostly decide the system of reward points.
06:46But to some extent these payment networks also decide what kind of rewards will be given in our network.
06:52What benefits will be given to the credit card holders?
06:56However, one interesting thing to note is that more MasterCard cards cannot be issued in India right now
07:01because there were some guidelines which MasterCard did not follow
07:04and RBI said that people can continue using the existing MasterCards,
07:08but more MasterCards cannot be issued until the MasterCard company complies with these guidelines.
07:14But overall, it is also an interesting thing that different banks use different proportions of MasterCard, Visa, American Express.
07:21In this chart, you can see which different banks use which payment network more.
07:29There are some banks like RBL and YesBank which use only MasterCard 100%.
07:34On the other hand, there are some banks like Kotak which use only Visa 100%.
07:39Now that we are talking about banks, let's look at things from the perspective of banks.
07:43How do all these banks earn money from credit cards?
07:47The simplest way to earn money is by charging annual fees.
07:50To use some credit cards, you have to make annual payments.
07:56Apart from this, many other types of fees are charged by banks.
07:59If you are not paying the money on time, a late fee will be charged.
08:03If you want to withdraw cash from a credit card,
08:05then often you have to pay an extra payment of 2-5% on this.
08:10But friends, you will be surprised to know that a large part of the income of these banks
08:14is actually due to people's stupidity.
08:16Many people do not pay their credit card bills on time at the end of the month.
08:22Due to which banks charge a very high interest rate on them.
08:26And this interest rate is so high that it can go up to 30% if you count it in a year.
08:32And that is 2-3 times the interest rate of a loan.
08:34And by charging such a high interest rate,
08:38the bank earns a lot of money and people have to lose their money.
08:42If every person using a credit card starts paying his payments on time,
08:46then a large part of the profit of these banks will end.
08:49This is the reason friends, that credit cards are not so popular in some countries.
08:54Credit cards are not used much in many European countries
08:56because the mindset of people is such that they always make payments on time.
09:00They never buy something when they do not have money to buy it.
09:05People do not buy things on EMI much in Europe,
09:08so credit cards are not so popular in Europe.
09:11This is compared to countries like India and USA
09:14where people have a habit of buying things when they do not have money to buy it.
09:18That is why some alternative banks like N26 and Revolut
09:21are becoming more popular in the European markets
09:24which offer some functions of credit cards.
09:27These banks offer their own debit cards.
09:28Some debit cards charge an annual fee
09:31and those debit cards offer you some rewards.
09:34Like insurances or something.
09:36But the security that you get in a credit card is not offered here.
09:39So, an attempt is being made to offer some functions of credit cards here.
09:44It is very interesting to see how with time,
09:46Jojo offers advantages credit cards.
09:50In the coming time,
09:51these companies are trying to offer all those advantages in different ways
09:54and reduce the disadvantages of credit cards.
09:57And when the competition between these companies increases,
10:01then more advantages will increase for us
10:03and these disadvantages will decrease for us.
10:05But if we talk about the present,
10:07the disadvantages of credit cards must have already become clear to you.
10:12As I told you,
10:13if you do not make your payments on time,
10:15if you do not pay your credit card bills on time,
10:17then you can pay a lot of interest
10:19and very quickly you can go into a day spiral.
10:21Where you could not make the payment on time,
10:25today you are charged so much interest that you have to pay even more.
10:29If you waited for a few more days,
10:31that payment increased even more
10:33and within a few days,
10:34in a few months,
10:35that payment became so high that it was out of your reach.
10:38I have already talked about the other disadvantages as well.
10:40Credit cards have a lot of hidden fees.
10:43So now the question arises whether you should use a credit card or not.
10:46Its answer is very simple friends.
10:49If you make your payments on time for credit card bills,
10:52then you can use it.
10:54On the other hand,
10:55if you use a credit card to buy things that you cannot afford.
10:59If you buy something today thinking that I don't have money right now,
11:02I buy it on credit card.
11:04But I will arrange money from somewhere after 30 days.
11:07Then don't use credit card.
11:09You can get caught in day trap.
11:11Thirdly,
11:11if you are going to buy a credit card by looking at some rewards,
11:14then evaluate the situation a little.
11:17The different fees that you will pay for using that credit card
11:20are often 2-3% processing fees
11:22and the rewards that you will get in return
11:24will they actually be worth it
11:25or you will only incur a loss there.
11:28So you will have to calculate this a little and see.
11:32But fourthly,
11:33if you are afraid of fraud
11:34while making online payment or payment anywhere,
11:37then to maintain safety,
11:38use credit card only at this place.
11:41I hope you found the video informative,
11:43but also tell me on which topic
11:45you would like to see the next financial education video.
11:48See you in the next video.
11:49Thank you very much.
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