Credit card or forex card for students abroad: Which one actually costs less for ₹1 lakh of spending?

A credit card is convenient and may come with rewards or cashback. A forex card, on the other hand, is designed for spending in foreign currency and can help reduce currency conversion costs.

So, if a student spends ₹1 lakh abroad, which one actually works out cheaper?

For students who have regular expenses abroad for several months, forex cards can be cheaper than traditional credit cards, especially when the credit card charges a foreign exchange markup on every transaction. But it is not as simple as saying one card is always cheaper than the other. The fees and exchange rate offered by the card also matter.

A foreign exchange markup is a fee charged by the bank or card issuer when you use your card for a transaction in a foreign currency.

“When considering whether to use a credit card or forex card while staying abroad, one must look beyond which card comes with lower fees. For students, what is more important is the total cost of accessing and spending foreign currency over several months.

“Unlike a one-time vacation, education-related expenses are recurring. These include rent, transport, groceries and subscriptions. So, even a small percentage charged on every transaction can add up over time,” said Pavan Kumar Kavad, Managing Director, Prithvi Exchange.

For instance, if a student spends the equivalent of ₹1 lakh abroad using a credit card that charges a 3.5% forex markup, the markup would be ₹3,500. With 18% GST on the markup, the additional cost comes to ₹4,130. This would take the total cost of the ₹1 lakh spending to around ₹1,04,130.

“If the student’s expenses increase to ₹5 lakh over a period of time, the same 3.5% markup and GST would add around ₹20,650 in additional charges, even before considering other applicable fees. For a student whose overseas expenses continue for two years or more, this difference can become considerable,” said Kavad.

A forex card works differently. The student can load money onto the card in the required foreign currency and then use it for eligible purchases. There may be fees for issuing or reloading the card, as well as charges for encashing the remaining balance.

“In the case of a forex card, the student can instead load the equivalent of ₹1 lakh in the required currency upfront and use it directly for eligible purchases. While issuance, reload fees or encashment charges may apply, the forex card gives parents better control over how much money is being loaded and spent. It can also help students avoid repeated currency conversion costs,” said Kavad.

There is also the question of exchange rates. Parents can choose to buy foreign currency at a particular exchange rate instead of converting money every time the student needs to make a payment.

“The other important consideration is currency risk. Parents can decide how much foreign currency to purchase at a particular exchange rate instead of converting smaller amounts repeatedly as the student’s expenses arise. The right way to compare, therefore, is the applicable rupee cost of the total expenses, instead of the cost of individual transactions,” said Kavad.

However, credit cards are not necessarily expensive across the board. Some cards now offer zero forex markup, which can change the calculation.

So, before choosing between a credit card and a forex card, students and parents should look at the complete cost. Forex markup, GST, loading and reload charges, exchange rates and any rewards or cashback can all affect the final amount.

_Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. _