Purchasing jewellery is a significant expense, often linked to tradition, investment, and special occasions. Many people opt for credit cards to finance these purchases. But with certain restrictions from the RBI, does it still make sense? Let’s explore the pros and cons.
RBI Restrictions on Jewellery Purchases via Credit Cards
In 2013, the RBI implemented measures to control gold imports and retail consumption. As a result:
- Banks were instructed not to convert gold purchases made through credit cards into EMIs.
- Credit cards were no longer accepted for purchasing gold coins.
- Many banks, which previously allowed EMI conversion for transactions above ₹5,000, had to discontinue these options. Some had even partnered with jewellers to waive processing fees and offer lower interest rates, but these benefits were removed.
Benefits of Buying Jewellery with a Credit Card
- Convenience and Security: Credit cards allow instant purchases without the need to carry large amounts of cash, making transactions safer and hassle-free.
- Reward Points and Cashback: Some credit cards offer reward points, cashback, or special discounts on jewellery purchases, helping reduce overall costs.
- Interest-Free Period: Most credit cards provide an interest-free period of up to 45-50 days. If the full amount is paid before the due date, buyers can avoid interest charges.
Risks of Buying Jewellery with a Credit Card
- High-Interest Rates: If the full amount is not repaid on time, interest rates can go as high as 40% per annum, making the purchase significantly more expensive.
- Debt Burden: Overspending on a credit card without a repayment plan can lead to financial stress. A high outstanding balance increases the credit utilisation ratio (CUR), which can lower the credit score and affect future loan approvals.
Smart Ways to Use Credit Cards for Jewellery Purchases
- Compare Offers: Look for banks that offer cashback, discounts, or reward points on jewellery transactions to maximize benefits.
- Plan Your Budget: Ensure that the purchase fits within your financial limits and that you can repay the credit card bill without affecting essential expenses.
- Use the Right Credit Card: Some premium credit cards provide higher rewards for big-ticket purchases, making them a better choice for jewellery shopping.
- Pay the Full Bill: Paying only the minimum due can lead to heavy interest charges. It is always best to clear the entire amount before the due date.
Final Thoughts
Using a credit card for jewellery purchases has both advantages and drawbacks. While it offers convenience, security, and potential rewards, high-interest rates and debt risks must be considered. With the RBI restrictions limiting EMI options, buyers need to be cautious and plan their payments wisely. When used responsibly, a credit card can be a valuable financial tool, but poor management can lead to unnecessary financial strain.