Free or Paid Credit Card – Which Should You Choose?

The top advantage of a credit card is that it provides exceptional financial freedom. However, the annual fee is always confusing for credit card holders. 

You may find two types of credit cards in the market – no-annual-fee-free credit cards and with-annual-fee credit cards. 

While technically, the easiest choice would be a free credit card, it is wise to evaluate the pros and cons before choosing between free and paid cards. The choice should depend on your spending pattern, annual expenditure, and the benefits you expect.  

What Is A Free Credit Card?

As the name suggests, a no-annual fee-free credit card charges you nothing for using or maintaining the card. 

So, you can keep the card, use it to purchase products or pay bills, and repay the dues conveniently – all without paying a single penny for card maintenance. You can also convert your credit card due into an EMI and pay monthly.

Free credit cards are usually entry-level and offer basic features like rewards, cashback, discounts, and no-reward redemption fees. However, these cards generally do not offer value-added features like free airport lounge access, movie tickets, travel benefits, complimentary games, or insurance. The reward rates of free cards typically range between 1% and 5%.  

What Is A Paid Credit Card?

While not always, a paid credit card offers more rewards, points, cashback, and other value-added features than free credit cards. It may also offer dining offers, free airport lounge access, travel benefits, insurance coverage, etc. 

However, you must pay a membership fee, a.k.a. annual fee, irrespective of whether you use the card. Some credit card providers also provide the facility to 

Unlike free credit cards, the annual fee of an entry-level card may start at Rs. 500, whereas the fee for a super-premium card may go up to Rs. 60,000 per annum. However, some card providers waive the annual fee if you spend more than a specific amount with your card. 

The amount is referred to as the ‘Spend Milestone.’ For instance, some financial institutions may waive the annual fee of Rs. 1,000 if your spending milestone exceeds Rs. 1 lakh in your membership year.  

Benefits You May Expect From A No-Annual-Fee Free Credit Card 

A free credit card does not force you to spend anything or collect any membership fee at any time. Besides reward points, these cards offer benefits like food and dining, education, entertainment, fuel, health and wellness, and travel. 

The following are the benefits you may expect from these cards.

  • Reward Point – A free credit card gives 1 reward point for every Rs. 50 you spend with your card, including on fuel, utility payments, and insurance. Moreover, you can get 5X rewards on the top two spend categories every month. 
  • No Point Expiry – Some card providers do not remove your points if you do not purchase something before a specific date. So, you can keep your points for as long as you like and use them to get discounts. 
  • Exchange Points for Cash – If you accumulate 500 reward points, you can redeem them on any online or offline transaction. Alternatively, you may use the points to get an instant discount on your credit card bill. For instance, if you have 500 reward points and use them to transact or for bill settlement, you will get a discount of Rs. 50.
  • No Charge for Redeeming Points – Most card providers charge an amount of Rs. 150 or so to facilitate point redemptions. However, some card providers don’t charge any fee for redeeming points. 
  • Offers on Food and Dining – Be it 25% off on food orders, a 10% instant discount on grocery shopping, zero delivery fees, or 20% off at restaurants, a plethora of offers wait for free credit card users. 

Besides the benefits mentioned above, a no-annual-fee-free credit card user may also get offers on other categories like entertainment, fuel, etc. 

Benefits You May Expect From A With-Annual-Fee Free Credit Card 

A paid credit card offers benefits similar to a free credit card in the above-mentioned categories. 

However, you can get some extra benefits, such as extra reward points for all spending, free lounge access at domestic or international airports (up to a specific limit), extra discounts on food and dining, and many more. 

Free Or Paid Credit Card – Which Should You Choose? 

Earlier, a with-fee credit card offered considerably higher benefits than free credit cards. However, thanks to new-gen financial platforms, you can get almost the same benefits on free credit cards as on their paid counterparts. 

So, whether you choose a free or paid credit card depends on your spending pattern, expected benefits, and annual expenditure.

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