Everyday payments have become much more convenient and quicker when you consider using digital transactions. Users can make payments to merchants, transfer money and manage their expenses with their UPI apps on smartphones. The ecosystem has evolved much further, supporting credit-linked payments for debt backed by collateral like fixed deposits, gold, and shares.
Understanding how these facilities work and the risks that are associated with them is more important before you choose to use them for convenience. Borrowing funds becomes much easier when a UPI app is linked to the credit facility. However, it is essential that you consider the repayment terms, interest, and the security of the asset.
What Is a Credit Line Linked to Assets?
A borrowing facility that is pre-approved and allows users to get access to funds whenever it is required, with terms set by the lender, is referred to as a credit line. Unlike other borrowing facilities, here the borrower uses the amount only when it is needed.
When an asset backs a credit line, it serves as security for the facility. Depending on the lender’s policies, fixed deposits, gold, and eligible shares may be used as collateral. Once linked to a UPI app, the facility may be used for eligible transactions through supported UPI channels.
How Does a Credit Line Against a Fixed Deposit Work?
The credit line that allows a borrower to get access to funds as per the value of the existing fixed deposits is referred to as a credit line against a fixed deposit. While the deposit remains with the financial institution, the portion of the value supports the credit facility.
For users who need short-term funds without breaking the FD on an immediate basis, this facility helps a lot. It is advised that these users must look out for the interest rates, fees, repayment conditions, and any other terms and restrictions applicable.
So, make sure you understand whether the credit line can be used for the main purpose and how repayment works before you use the facility through a UPI app.
How Does a Gold-Backed Credit Line Work?
When the eligible gold jewellery is pledged as collateral, the lender offers a gold-backed credit line. The current value of the gold is analysed, and the lender determines if the credit is available as per the policies.
Without having to sell the gold, the facility allows users to get access to funds, and when the repayment is made, the security is handed over to the borrower. As per the agreed terms and conditions, the borrower remains responsible for repayments. Failure to make repayments, borrowers can lose their assets.
Using a UPI app for eligible credit transactions may improve convenience, but it does not change the borrower’s repayment responsibility.
How Do Share-Backed Credit Lines Work?
When a credit line is offered against eligible shares and other securities, it is referred to as a share-backed credit line. On the approved shares or any other permitted investments, the lender may place a lien. The borrowing limit offered by the lender depends on the value and eligibility of the securities that you offer.
While the value of the share price fluctuates, borrowers must understand that these changes in the value of the securities affect the credit facilities. Additional requirements may apply if the value falls below the lender’s prescribed level.
So, users must not assume that a UPI app makes this type of credit free of risk. Market movements can directly affect a securities-backed facility.
Conclusion
Credit lines secured by fixed deposits, gold, or shares can provide access to funds without requiring you to sell or close the underlying asset right away. However, each option involves specific repayment, collateral, and market-related considerations. Review the terms carefully and borrow only if repayment is manageable.
Bajaj Finserv’s Bajaj Pay UPI and UPI Lite offer convenient ways to make digital payments, including QR payments, payments to contacts or UPI IDs, balance checks, payment history, bill payments, and mobile recharges. Understanding both the payment platform and the underlying credit facility can help users make informed financial decisions.
