Loan against credit card

Recently I came across this very interesting personal loan scheme. The merchant would swipe your credit card and max out your credit limit (say 30,000/-) and make a spot payment of 28950/- (he charges a 3.5% commission for these activities).
This thousand fifty of processing fees for the loan might look exorbitant, but actually it works out a lot less.

1. Most credit cards company would offer you a loyalty gift/cashback worth 1% or 300/- for this transaction
2. If you could match the billing cycle, then you can have a 45-50 day loan at 3.5% interest or 33.5% compounded annually. After accounting for the 300/-loyalty points, it comes to only 1.7% monthly which is lower than any other commercial loan of the similar duration. If you have multiple credit cards, then probably you could roll over this credit to longer periods at favorable terms.
3. Cash limit from credit cards is usually lower than the spending limit also when one accounts for the ATM usage charge and the fact that the interest cost starts kicking the second you make the withdrawal, traditional loan against credit card looks less attractive.
4. Most personal loan come for a minimum of 6 months period and has a substantial processing fees and early payment fine. This makes it very expensive for ultra short term loans.
5. Bank overdraft facility is the cheapest option, but unfortunately very few individuals have it.
6. Almost all other credit option require half-one day of processing time, while this is instant.
7. Earlier there used to be a local Marwari/Reddy who would double up as a pawn broker and issue loans. However lately many of them have started shutting shops and rest have become notorious of using physical violence. Hence most customers don’t want to deal with them.
8. Go for the crowdFunding and P2P loans. But most of them take a long time to close and there is always an uncertainty.

This post is written not to encourage individuals to accumulate huge personal debt but to show how ingenious unorganized sector has become. Also care must be taken to note that this activity is not legal in India. Yet these individuals advertize in newspapers and banks has not yet objected.


Credit Card theft

A friend of mine was a victim of online credit card. Someone used his credit card information to purchase airline tickets online.

This is the advice I gave him.
1. Call the Credit Card Company and block the Credit Card: After verification this process should take 30 seconds and no credit card company can legally ask you questions or try to sway your mind.
2. Then ask them to email/courier you the Credit Card Fraud Form and try to gather as much information as possible about that transaction. (There was one case in which on my ad-on card, my brother made a transaction that he had no recollection of. Hence querying of such details can prevent any such embarrassment)
3. Many good credit cards have a in build fraud protection insurance/scheme. Check the website/documents of any such scheme.
4. Check with the merchant. Usually they help willingly. However if they show reluctance, threaten then with a Credit Card Dispute.
According to investopeida
” This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved. ”
Basically any merchant understands that once a dispute is called, he would have to spend a lot of time in documentation and legal hassles. Whats worse is that the Credit Card Company will charge the merchant for all the processes at its end and might even blacklist the merchant.
There is often a chance that the merchandise was not shipped, or the travel not made. In those cases timely action limits the damage caused and might also help in nabbing the culprit.
5. Deduct the wrong transaction and Clear all the remaining credit card outstanding, billed and unbilled. This demonstrates the genuineness of your intention and helps to sway the authorities to give a ruling in your favor.



Visa confirmed it would proceed with a public offering this spring. The company hopes to raise $18.8 billion, making it America’s biggest IPO. Visa takes fees from credit-card transactions;

Isn’t it odd that the in a time when the entire world is facing Credit Crisis, loan defaults are at an all time high, VISA (which makes all its money from Credit Cards) is confident that it can launch the biggest IPO in American history. Maybe it proves that the present crisis cannot scare off the companies with sound fundamentals.

PS: the default risk is borne entirely by the company issuing credit cards and not VISA. Hence the company could take this audacious step.



Credit Cards

A friend of mine asked me if Credit Card is any good. He had heard so much about people falling into plastic debt and paying a steep 2% p.m. Interest that he was scared.

My advice:
1) Define why do you want it?
2) Keep a record of all your expenses and never purchase anything just because you have an unlimited credit limit.
3) Most credit cards have a reward system. But you should never spend just to get benefit out of it.
4) Don’t start an automated payment system, where in your telephone/mobile etc. bills are automatically deducted from your credit card. These payments are hard to stop, and often you end up paying even if the bill was wrongly generated.

Let me tell about myself:
1)I bought credit card because of convenience. I do not own a vehicle and it is a pain to travel every now to an ATM every now and then.
2)I do a lot of purchases online (e-bay, airline tickets, movies, magazine subscription fees) for which credit card is kind of must.
3)While traveling, esp to a distant land, a card is a sense of security. It allows you to handle the unexpected.
4)Rolling cash: Most people need a contingency fund to take care of short term cash crunch. A credit repayment cycle of 50 days give you an additional 6 weeks of rolling cash without any extra burden.
5)Forex transactions: In the global economy you often have to pay in USD. If I go for a bank cheque, I need to go to the bank with my passport. With a credit card, I just need to give my cvv number.
6)The advertisement department makes a lot of noise about all the member benefits and uses… but trust me in 2 years I have always found that for all practical purposes credit card is almost similar to a debit card.
7)Insurance: Actually it is a crap. If anything happens to you your family is not liable for any unsecured loans you have taken. So the insurance is only to minimize bank’s risks.. not urs. Plus the insurance they offer is not even worth the Paper it is written on.

Always take care of reading the fine print. Credit card wait and pray for you to falter and they make tons of money.

Remember owning a card is not the same as using it. There are lots of free cards in the market and you could simply own one and put in your stash… just for those bad days. I just carry a debit card in my wallet.



actual incident with my credit card

I was signing the receipt for my credit card purchase when the clerk noticed that I had never signed my name on the back of the
credit card. She informed me that she would not complete the transaction unless the card was signed. When I asked why, she
explained that it was necessary to compare the signature on the credit card with the signature I just signed on the receipt. So I
signed the credit card in front of her. She carefully compared (even put on her glasses) that signature to the one I signed on
the receipt. As luck would have it, they matched.