Should You Use Your Credit Card to Buy Gold?

Buying gold with a credit card is an option many consider, especially with rising gold prices and festive demand. While it offers convenience and instant ownership, factors like RBI regulations, interest rates, and repayment terms must be considered.

Does this move affect your financial health? Let’s explore what the RBI says and weigh the pros and cons to help you make an informed decision.

RBI’s Restrictions on Gold Purchases via Credit Cards

The Reserve Bank of India (RBI) has placed restrictions on purchasing gold using credit cards. In 2013, the central bank directed banks not to convert gold transactions into Equated Monthly Instalments (EMIs) and prohibited credit card payments for gold coin purchases at bank branches.

Despite these restrictions, many banks continue to offer EMI facilities on high-value transactions like air tickets, mobile phones, and gold jewellery.

Typically, customers making purchases above ₹10,000 are given the option to convert their dues into EMIs. Some banks even have merchant tie-ups that offer benefits like reduced processing fees and interest waivers.

A similar advisory was reissued in 2018, leading most banks to withdraw EMI options on credit card purchases of jewellery.

Charges on Gold Purchases Through Credit Card

When purchasing gold using a credit card, merchants often impose a processing fee, which can be as high as 3.5% or more. These fees, commonly known as swipe fees, are levied by credit card networks like Visa and Mastercard to cover transaction processing costs.

Merchant fees typically consist of a percentage of the transaction amount along with a fixed charge. For instance, if a merchant fee structure is 2.5% + ₹0.30 per transaction, a ₹1,000 gold purchase would result in a ₹25.30 charge (₹25 as a percentage fee + ₹0.30 as a fixed fee).

While accepting credit cards can boost sales for businesses, the cumulative merchant fees can significantly affect profit margins. According to RBI data, in January 2023 alone, Indians made over 78 crore credit card transactions amounting to ₹82,993 crore, leading to substantial merchant fee payouts by businesses.

Why Some Buyers Prefer Credit Cards for Jewellery Shopping?

Using a credit card eliminates the need to carry large amounts of cash, making jewellery purchases safer and hassle-free. It allows for instant transactions without the risk associated with cash handling.

Many credit cards provide benefits such as reward points, cashback, or special discounts on jewellery purchases. Some banks even collaborate with jewellers to offer exclusive deals. Most credit cards come with an interest-free period of 45-50 days.

If the outstanding amount is paid in full before the due date, buyers can avoid additional interest charges, making short-term credit usage more manageable.

Conclusion

Buying gold or jewellery with a credit card comes with both advantages and potential drawbacks. While it offers convenience, reward points, and an interest-free period, factors like processing fees, RBI regulations, and financial discipline play a crucial role in this decision.

Before making a purchase, it’s important to weigh these aspects carefully and assess how it aligns with your financial situation and goals.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.