When it comes to shopping in stores and online, credit cards are convenient, but they can leave you with an unmanageable debt. Not everyone gets a credit card or even if you own one, they can at times prove to be an expensive alternate. Alternative credit card issuers are attempting to bridge the gap by assessing creditworthiness using their own atypical underwriting rules based on factors such as income, job, and bank account information. Some of these products work like classic credit cards, while others behave more like charge cards.
But the point is that you have options even if you have low credit, limited credit, or no credit at all – and some of them may be easier to obtain than you think.
Consider the following alternatives to a credit card.
When it comes to borrowing money, your bank is frequently the most familiar with you. So, if you need a little additional cash quickly, you might ask for a scheduled overdraft as part of your current account. When your balance falls into negative territory, you will be able to withdraw funds up to a predetermined limit.
Depending on individual circumstances, some bank accounts offer this service interest-free up to a particular sum or for a set length of time. If you decide to use an overdraft that will incur interest, along with a strategy for repaying the loan, you should be informed of how much it will cost you to borrow in this manner.
2. Loan From Friends or Family
Consider asking friends and family for a free or low-interest short-term loan. Yes, requesting can be humiliating, and the loan may come with a lot of emotional baggage. It will help if you keep things professional: Use a professionally completed written agreement that spells out all of the provisions so that both parties are on the same page in terms of cost and repayment.
3. Bank or Other Lender Personal Loan
An unsecured personal loan from a bank, credit union, or other lender may be less expensive than a credit card cash advance for a borrower with strong or exceptional credit. Furthermore, personal loans often have fixed interest rates, making them more predictable than variable credit card rates.
4. Basic current account
Using a basic current account is one way to prevent the chance of expanding your debt. It is the same as a standard current account, but with fewer choices to choose from, which means you are less likely to incur additional debt along the way.
While a regular current account can still charge you for going overdrawn, a basic current account does not, which also means you will not be required to pass a credit check. Especially beneficial for folks with poor credit.
5. Secured Loan
Loans backed by collateral often have less severe credit standards than unsecured loans and typically carry cheaper interest rates. Home equity loans and lines of credit, for example, are secured by the value of your home. Some banks issue loans based on the value of a certificate of deposit (CD).
6. Debit card
A debit card, which normally comes standard with a current account, is perhaps the most obvious alternative to a credit card. If you don’t want to use cash and want to buy online, over the phone, or in-store, a debit card provides convenience and some consumer protection. However, unless you have a pre-arranged overdraft, it will not allow you to spend money that you do not have.
If you are dissatisfied with the things you purchased or acquired anything that was not as described, you may be able to request a refund through Chargeback, which can provide further peace of mind. This is a method in which your bank reverses the transaction; however, there is a time limit and it is not always a rapid process.
7. Peer to peer lending
Peer-to-peer lending is becoming more popular as an alternative to credit cards. This is a type of personal loan, but instead of borrowing from a bank or building society, you lend to individuals who want to earn more money on their savings than standard savings accounts provide.
Through an online process that screens borrowers for suitability, you are paired with lenders. This means you’ll still need to apply and be risk-assessed, just as you would for any other personal loan.
As with other loans, failing to make timely payments or defaulting on the loan may harm your credit score and subject you to further charges and fees. It is consequently vital that you review the terms and circumstances, as well as the interest rates.
8. Secured Credit Card
If you have bad or no credit, a secured credit card can help you rebuild your credit. It requires a cash deposit that serves as your spending cap. If you do not pay your bill, the issuer will deduct the sum from your cash deposit.
Even if the deposit covers your missing payment, it’s still a problem because the lender will record it to the credit bureaus. If you don’t make your payments on time, your efforts to improve your credit may backfire.
Despite their earning potential and perks, credit cards are not suitable for all Indians, particularly those who are prone to incurring debt. If you don’t need such privileges and want more control over your spending, credit card alternatives such as debit, prepaid, and charge cards are a better option. With a better grasp of the benefits and drawbacks of those options, you can make more educated decisions that are more in line with your financial habits and goals.