1. The "Interest-Free Grace Period" on a credit card is applicable only if:
The customer has no outstanding balance from the previous month (Full payment made).
The customer uses the card internationally.
The customer pays the Minimum Amount Due (MAD).
The customer withdraws cash.
Explanation:
If the customer rolls over credit (pays only MAD), the interest-free period is withdrawn, and new purchases attract interest from Day 1. Full payment of the previous bill restores the grace period.
2. How does a "Charge Card" differ from a standard "Credit Card"?
It requires the cardholder to pay the FULL balance each month; no revolving credit is allowed.
It is a prepaid card.
It has a lower credit limit.
It can only be used at ATMs.
Explanation:
A Charge Card (e.g., Amex) has no pre-set spending limit but does not offer the option to roll over the balance. The full bill must be paid by the due date, unlike credit cards which allow minimum payment.
3. If a customer changes their credit card "Billing Cycle", it essentially changes:
The annual fee.
The interest rate.
The statement generation date and payment due date.
The credit limit.
Explanation:
RBI allows customers to modify their billing cycle to align the due date with their salary date or cash flow convenience.
4. If a credit card holder pays only the "Minimum Amount Due" by the due date, interest is charged on:
The remaining unpaid balance from the due date.
The total amount of all transactions from the date of each purchase until the previous balance is fully paid.
The new transactions only.
The remaining unpaid balance only.
Explanation:
Paying only the minimum due revokes the interest-free period. Interest is calculated on the *entire* bill amount from the date of purchase, not just the unpaid portion, until the outstanding is cleared.
5. If a credit card is lost and reported immediately, what is the cardholder's liability for subsequent fraudulent transactions?
Full liability.
Zero liability.
50% of transaction value.
Limited to credit limit.
Explanation:
Once the loss is reported to the bank, the cardholder has zero liability for any transactions that occur *after* the reporting time. Most cards also offer "Zero Lost Card Liability" for a period prior to reporting as well.
6. When a high-value credit card transaction is converted into EMI:
The interest rate charged is usually lower than the revolving credit interest rate.
The principal amount is blocked until the tenure ends.
The credit limit is immediately restored.
No interest is charged.
Explanation:
Banks offer EMI conversion at a reduced interest rate (e.g., 15-24% p.a.) compared to the standard revolving credit rate (36-42% p.a.) to encourage affordability.
7. Typically, the "Cash Limit" on a credit card is:
A percentage (e.g., 20-40%) of the Total Credit Limit.
Higher than the Credit Limit.
Zero.
Equal to the Total Credit Limit.
Explanation:
Cash withdrawal is a high-risk feature. Banks restrict the cash limit to a fraction of the total limit to minimize risk and discourage cash advances.
8. A "Chargeback" in a credit card transaction refers to:
Interest charged on cash withdrawal.
A reward point redemption.
A reversal of a transaction by the issuing bank due to a dispute raised by the cardholder.
A refund of the annual fee.
Explanation:
If a customer claims a transaction was fraudulent or goods were not delivered, they can raise a dispute. If valid, the bank forces a reversal of funds from the merchant, known as a Chargeback.
9. Which of the following best describes "Revolving Credit" on a credit card?
The card revolves in a machine.
The interest rate changes daily.
The customer can carry forward the unpaid balance to the next month by paying interest.
The limit resets to zero every month.
Explanation:
Revolving credit allows the borrower to pay only a minimum amount and roll over the rest of the debt to the next billing cycle, incurring finance charges.
10. If a credit card user withdraws cash from an ATM, the interest is charged from:
The billing date.
The due date of the bill.
After the interest-free grace period ends.
The date of the transaction (Date of withdrawal).
Explanation:
Unlike retail purchases (POS/Online) which may have an interest-free period, Cash Advances on credit cards attract interest charges immediately from the date of transaction until the date of payment, along with a one-time cash advance fee.
11. If a credit cardholder persistently pays only the "Minimum Amount Due" (MAD) for several months, what is the likely outcome?
The bank will waive the interest.
The credit score will improve significantly.
The debt will balloon due to the high revolving interest rate on the unpaid balance.
The debt will be cleared quickly.
Explanation:
Paying only MAD keeps the card active but the unpaid balance attracts heavy interest (30-40% p.a.), leading to a debt trap. It acts as a negative factor in credit scoring long-term.