In today’s digital world, people have many payment options while shopping both online and offline. Earlier, most purchases were made with cash, and spending was limited to what you had in your pocket. Now, things are different as credit cards allow you to spend even when you do not have enough balance in your account. On the other hand, UPI works only when there is sufficient money in your savings account.
This brings up an important question: which option is really cheaper? Should you swipe your credit card even when you have money in the bank, or is it better to pay through UPI? Let’s find out.
What is UPI and a Credit Card?
Unified Payments Interface (UPI) is a real-time system that enables instant bank-to-bank transfers through mobile apps. Payments can be made easily by scanning a QR code or using a virtual ID. UPI has become one of the most popular payment options in India and is widely accepted by shops and online platforms.
A credit card, on the other hand, is a payment tool that lets you borrow money from a pre-approved limit to make purchases and pay back later. To accept card payments, businesses need a payment processor, a merchant account, and must follow security rules to keep customer data safe.
UPI vs Credit Card – Who is Leading the Race in India?
Credit card usage in India is growing, but at a slower pace than UPI. In June 2025, card spending fell to Rs 1.83 trillion from Rs 1.90 trillion in May, a decline of about 3.6%. Yet, on a yearly basis, volumes rose 27% and value increased 12% by July 2025. In the same month, about 0.49 billion transactions were recorded, with half at physical stores and nearly the same on e-commerce.
UPI shows far stronger momentum. Transactions crossed 20.01 billion in August 2025, up 3% from July, with daily volumes rising to 6.45 crore from 6.28 crore. In value terms, UPI processed Rs 24 lakh crore in August versus Rs 25 lakh crore in July. On a yearly basis, UPI volumes jumped 34% and values climbed 21%, making it the leading digital payment system in India.
UPI Transaction Charges
UPI is free for personal transactions. Charges apply only on payments through wallets above Rs 2,000, and these fees are paid by merchants, not customers. Key points about UPI charges:
- Interchange Fee: Merchants or their banks pay the interchange fee, while customers do not bear any extra cost.
- When it Applies: Wallet-based UPI transactions above Rs 2,000 attract fees.
- How Much: The fee ranges from 0.5% to 1.1% depending on the category of payment.
- Wallet Loading Charge: Wallet issuers like PhonePe or Paytm must pay a 0.15% service charge to banks when a wallet is loaded with more than Rs 2,000.
- P2P and P2M: Peer-to-peer transfers between individuals and peer-to-merchant payments made by customers remain free for users.
Common Credit Card Charges
Credit cards often come with different charges that depend on how the card is used. Knowing these costs can help you manage your spending better.
- Annual Fee: A yearly charge that can range from 0 to 2% depending on the card type.
- ATM Withdrawal Fee: Around Rs 300 to Rs 500 per transaction when withdrawing cash from an ATM.
- Cash Advance Fee: About 2.5% to 3.5% for cash withdrawals using the card.
- Late Payment Fee: Rs 100 to Rs 1,000 if the bill is not cleared by the due date.
- Over-limit Fee: 2% to 3% if spending goes beyond the approved credit limit.
- Interest Rate or APR: Between 24% and 49% yearly on unpaid balances.
- EMI Conversion Charge: 1% to 2% when converting purchases into EMIs.
- Card Replacement Fee: Rs 100 to Rs 250 for a new card if the old one is lost or damaged.
- Processing Fees: 1% to 3% on certain transactions, depending on card terms.
Note: Actual charges vary from one card issuer to another.
UPI vs Credit Card: Which is Really Cheaper?
When it comes to cost, UPI is clearly lighter on the pocket. For personal transactions, UPI is free, and the government has not announced any charges for individual users. The only condition is that the user must have a balance in their bank account for payment.
Credit cards, on the other hand, come with various costs as discussed above. Moreover, many times small merchants (local shopkeepers) ask for additional fees to nullify the merchant fee of 1.5% to 3.5% on every card transaction, which should be borne by them only. Large retailers and retail chains like D-Mart and Vishal Mega Mart usually absorb this cost.
Besides this, users can easily overspend even without having enough bank balance. However, if the bill is not paid on time, then interest rates, late fees, and other charges can add stress. Even converting purchases into EMIs attracts extra charges.
UPI vs Credit Card: Benefits Beyond Cost
UPI offers simplicity with instant payments directly from the bank account. It is widely accepted by almost every merchant in India, making it highly convenient for daily transactions without any extra steps.
Credit cards, just like their multiple charges, also come with a wide range of benefits that go beyond payments. Users can enjoy rewards, interest-free credit, cashback, and EMI options while also building a credit history. They are accepted globally, making them useful for travel and international purchases.
Additionally, credit cards can also act as an emergency fund during urgent situations. Many cards offer additional perks such as airport lounge access, travel insurance, discounts on flights and hotels, free movie tickets, shopping vouchers, reward points redemption, and exclusive offers when spending at partner outlets.
Scenarios: When to Use What
Wrapping Up
UPI remains the cheapest and simplest option for everyday payments since it is free for personal use and directly linked to the bank account. It helps people stay within their available balance and avoid unnecessary debt.
Credit cards, on the other hand, come with extra costs but also offer additional perks that, to some extent, justify the charges and fees imposed by credit card providers. They can be very useful for big purchases, travel, or in emergencies when instant credit is needed.
The smarter choice depends on money habits. UPI is best for controlling expenses, while timely repayment makes credit cards rewarding and good for building credit history.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
