Can you use a credit card beyond its sanctioned limit? This is how overdraft facility works

A credit card typically carries a credit limit that keeps a cap on its usage. This means if a credit card's limit is ₹10 lakh then the card user can spend upto ₹10 lakh. But what if on a particular occasion, you have a need to spend over ₹12 lakh. Well, out of the blue, it is not permitted. One must first enable the overdraft limit to be able to use the credit card more than its limit.

There are some pre-defined rules on using a credit card beyond its limit. The Reserve Bank of India (RBI) has stipulated that the usage of a credit card beyond the sanctioned credit limit calls for prior explicit consent of the cardholder. This is part of a fraud minimisation mechanism.

"Further, a cardholder shall be given an option to enable or disable the option of overlimit through transaction control mechanism available on card-issuer’s platforms such as internet, mobile banking, or any other suitable medium. Unless explicit consent has been obtained from the cardholder for the overlimit facility, no overlimit can either be provided or overlimit charges be levied," reads the RBI's Master Direction on credit cards (dated April 21, 2022 and updated on March 7, 2024).

Credit card against overdraft facility

In fact, banks can also issue a card to other loan accounts such as overdraft facility, cash credit facilities. RBI's master directions have enabled the issuance of various types of credit cards that can be customised to access the limits available in different loan accounts.

For instance, a card user availing an overdraft facility from a bank can be issued a type of credit card to access the funds available under the facility. The terms of usage of this credit card (interest charged, repayment schedule, penalty, cash withdrawal limit) will correspond to the terms and conditions applicable to the overdraft facility.

Let us suppose, some card user Mr X is given an overdraft facility of ₹7 lakh by the bank. The bank, in this case, may issue a credit card to Mr X linked to his overdraft facility. The card limit and other terms of this card will be same as that of the overdraft facility.

(Note: Using a credit card carries it own set of risks)