Question

"Spend now and pay later" is the principle adopted in

• A. Debit card
• B. Smart card
• C. Credit card
• D. Charge card

Answer 1

Answer:

C. Credit card

• Definition: The principle of 'Spend now, pay later' refers to the mechanism of deferred payment, where a financial institution grants a customer a line of credit to make purchases, with the obligation to repay the balance at a later date.
• Credit Card Mechanism: A credit card is a payment instrument issued by banks or non-banking financial companies (NBFCs) that allows cardholders to borrow funds up to a pre-approved credit limit.
• Billing Cycle: The repayment is structured around a monthly billing cycle. If the total amount due is paid by the due date, no interest is typically charged on the purchases.
• Interest Application: If a user fails to pay the full amount or chooses the revolving credit option, the bank charges a high-interest rate (Annual Percentage Rate - APR) on the outstanding balance.
• Key Technical Terms:
  • Grace Period: The time between the purchase date and the payment due date during which no interest is charged.
  • Minimum Amount Due (MAD): The smallest amount a cardholder must pay to keep the account in good standing and avoid penalty charges.
  • Revolving Credit: A facility that allows users to carry over a portion of the debt to the next billing cycle.
• Cooperative Banking Context: While commercial banks are the primary issuers, cooperative banks and credit societies in India also facilitate credit services. These institutions operate under the Banking Regulation Act, 1949 and guidelines issued by the Reserve Bank of India (RBI).
• Comparison: Unlike a Debit Card, which draws funds directly from the user's savings or current account (Pay now), a Credit Card functions on a credit-based model (Pay later).