Facing credit card woes amid pandemic? Look for lower-cost credit options

Defaulting on card dues could restrict access to credit in future

Credit card issuers are becoming wary of losses in their portfolios. SBI Cards & Payment Services saw its gross non-performing assets ratio spike to 4.3 per cent for the quarter ended September 30, compared to 1.4 per cent in the April-June quarter. Axis Bank recently said it has been consciously rationalising its exposure to any high-risk segment. 

Industry experts say all lenders have turned conservative since the onset of the Covid-19 pandemic. The moratorium has made them even more cautious. “While the issuance of new credit cards and other lending products had almost stopped in the run-up to June, some card issuers had even blocked fresh credit card transactions for those availing of the moratorium,” says Sahil Arora, director, PaisaBazaar.  

Since July, the supply of new cards and loans has begun, but is restricted to salaried customers employed in sectors unaffected by the pandemic. The self-employed and those working in sectors hit hard continue to struggle to get access to new credit cards. 

Experts say an economic downturn is always accompanied by higher credit card delinquencies. “These will be higher in the non-premium and entry-level card segments,” says Gaurav Gupta, founder and chief executive officer, MyLoanCare. 

Lenders are focusing more on quality customers. “Affluent customers, who have continued to pay their dues, are facing no problems either in getting new credit cards or in enhancing their credit limit. But lenders are wary of those who have availed of the moratorium or defaulted,” says Rachit Chawla, founder and chief executive officer, Finway Financial Services Company.

Even if you are under financial stress, keep paying the minimum due on your credit card (usually not more than 10 per cent of the total outstanding). “If you don’t, your credit score will take a hit,” says Gupta. The interest rate charged on revolving credit is high — 30-49 per cent — so this should only be a temporary recourse.  

If your cash problems are going to last long, convert your card balance into equated monthly instalments (EMIs). But the rate of interest on this option is high — 18-20 per cent or more. 

Another option is credit card balance transfer, which entails taking a personal loan to pay off credit card dues. The interest rate on a personal loan is 11-24 per cent. Those employed with top corporates can get it for 11-14 per cent. 

Customers who have a home loan may opt for a top-up loan. The interest rate here will be 8-10 per cent or lower. Since the tenor is long, the EMI burden will be slight, and no additional collateral needs to be offered. But this option is available only to those who have taken possession and registered their property.  

Those who have jewellery may take a gold loan, where the average interest rate is 11-12 per cent. Arora suggests that salaried employees may withdraw from their Employees’ Provident Fund 

corpus. The government has allowed subscribers to withdraw up to 75 per cent of the accumulated corpus, or an amount equal to three months of Basic + Dearness Allowance of their salary, whichever is lower.