Your daughter studies in a different city. You transfer money to her bank account every month for her regular expenses. Or whenever she asks for it. UPI payments are accepted everywhere, and she has no problems getting by. She conveniently makes payments from her favorite UPI app for her purchases.
Now, imagine she needs Rs 10,000 immediately for an expense. As a caring parent, you should find out the reason for such a requirement first and fund her bank account accordingly. What if you cannot do that? There could be multiple reasons for this.
- You may be low on cash yourself. You may want to delay this expense over to the next month.
- You may have to sell an investment (break a FD and sell a mutual fund) to get the required amount. It may take you a few days to get money, but the requirement is urgent.
- For some reason, you cannot access your bank account. Mobile or internet banking are not working.
- There are issues with your mobile connectivity and your daughter is unable to reach you.
Your daughter needs to spend an amount that she does not have in her bank account. And you cannot transfer money to her bank account.
An Add-on Credit Card Can Help
An add-on or a supplementary credit card is a credit card that you can take in the name of a family member, say spouse or children. So, you have a primary credit card. The bank trusts you to make timely payments. You ask the bank to issue you an add-on card for your wife or children. There is no separate credit limit for add-on credit cards. The credit limit for such add-on cards is subsumed with the credit limit of your primary credit card.
Let us consider an example.
The credit limit on your primary card is Rs 3 lacs. The credit limit on the add-on or the supplementary credit card can be up to Rs 3 lacs, depending on bank’s discretion. Let us say it is Rs 2 lacs.
In such a case, the cumulative credit limit is NOT 3 + 2 = 5 lacs. It is still Rs 3 lacs, the credit limit of the primary card.
Your bank may allow you to get 2 to 5 add-on cards. The bank can charge you a fee for the add-on card. However, if the primary card is without a fee, it is unlikely that the banks will charge a fee for an add-on card. An add-on card can be issued to family members aged 18 and above. The eligibility conditions and eligible relationships may vary across banks.
Benefits of an Add-on Credit Card
- An add-on credit card immediately solves the problem we were trying to address earlier in the post. Your daughter can simply swipe her supplementary card to make a payment.
- Your spouse/kids get freedom to spend as they like. They do not have to ask you for every small expense. Makes them independent (to some extent) and responsible. Do note this can also be achieved through transferring a fixed amount to their bank accounts every month and allowing them to spend as they wish.
- All the charges on add-on cards will be posted to your bank statement. Hence, if you wish, you can also track where your family members are spending money. Can be quite relevant for kids.
- You can change/set credit and transaction limits on the primary card which will automatically apply to add-on cards too. Some banks may offer you an option to apply separate credit and transaction limits for add-on cards as well. Quite useful if your bank allows that. In that case, you can set up a different limit for the family member. For instance, the credit limit on the primary card is Rs 3 lacs. You can set up a limit of 20,000 on the supplementary card for your daughter.
- Since more people are using the credit card, you may be able to earn more reward points and reach spending milestones sooner. Frankly, this seems more like a risk than a benefit.
- Introduces the family member to a credit product. While this sounds good, I am not sure how this helps if you are paying the credit card bills.
Problems with an Add-on Card
- You are responsible for making timely payments on the credit card. Not the add-on card holder. If you miss payments, your credit score will be affected.
- If you do not control the credit and transaction limit for the add-on credit card (if your bank does not allow you to modify) and the settings of the primary card are applied to the supplementary card, then we have a problem. Since you use the card, you may keep the credit/transaction limit high as per your usage. But the same limits will apply to the family member too. You may not be able to control how much the family member spends within those limits.
- A workaround for the issue mentioned above is to have a separate primary card that you utilize only to get an add-on card. And set credit and transaction limits for the primary card as if you are setting limits for the add-on card. You do not spend on that primary card. You use another (primary) credit card for your expenses.
- Credit allows you to spend the money you do not have. Hence, there is a possibility that the spouse/kids may spend more than they would have if they had to pay directly from their bank account.
- Not everyone in your family may be as responsible with the credit card as you are. And I am talking about expenses. The family members may not be careful while using credit cards. You can lose money to credit card fraud. By having a second or a third add-on card, you multiply your chances of falling victim to card fraud.
Have you ever shared an add-on card with a family member? Do let us know your experience/concerns/feedback in the comments section.