Credit cards come with a lot of features, such as additional discounts and interesting reward points. Credit cards also come in different categories to suit every type of need. Even though credit cards provide instant money during emergencies, the charges associated with credit cards are very high. Experts suggest, when using a credit card, one should be aware of the different fees that are charged on them.
The following are some of the charges you must be aware of
1. Annual Maintenance Charge
This is popularly known as ‘annual fee’ and is not really a ‘hidden’ charge. The annual fee is charged once in a year and the amount varies card to card. Sometimes, banks offer free credit cards which mean that there will be no joining fee or annual fee on the card for a certain time period or for a lifetime.
2. Finance charges
Credit card issuers levy finance charges on failing to repay outstanding credit card dues in full. The unpaid bill amount attracts hefty finance charges in the range of 23-49 percent. Cardholders who are unable to repay their due amount should instead convert the entire bill or a part of it into EMIs. The interest charged levied on EMI conversions would be far lesser than the finance charges.
Making cash withdrawals from ATMs through your credit card would also attract finance charges right from the day of withdrawal till the repayment. Hence, credit card holders should always avoid ATM withdrawals through their credit cards to the extent possible.
3. Cash Advance Fee/withdrawal fee
A part of your total credit limit is given to you as a cash limit. This is the amount you can directly withdraw from the ATM using your credit card. Cash withdrawal or cash advance is quite a costly transaction as it entails fees as high as 2.5% of the amount withdrawn. Moreover, what many users do not know is that interest is charged on cash advances right from the day of making the transaction; the interest-free period does not apply for credit card cash withdrawals.
4. Late payment fee
Failure to repay the minimum amount due to the credit card bill by the due date attracts a late payment fee of up to Rs 1,300 depending on the credit card issuer and the bill amount. Those paying the minimum amount due but failing to repay the entire bill amount are spared from this penalty.
|Statement Balance||Late Payment Fee|
|Less than Rs.100||Nil|
|Rs.100 to Rs.500||Rs.100|
|Rs.501 to Rs.5,000||Rs.400|
|Rs.5,001 to Rs.10,000||Rs.500|
|Rs.10,001 and above||Rs.750|
5. Foreign Currency Mark-up Fee
Although credit card issuers promote that their cards are globally accepted but they never reveal that there will be extra fees for foreign transactions which is known as foreign currency mark-up fee. The fee may differ from one card to another and is usually charged as a percentage of the transaction amount. Let us understand this with the help of an example.
6. Over limit fee
Card issuers charge this fee when the credit card dues of their cardholders exceed their sanctioned credit limit. Most credit card issuers charge 2.5 percent of the over-limit amount, with the minimum fee being Rs 500.
7. Interest Rate (APR)
The Annual Percentage Rate (APR) charged on your credit card also affects your bills, especially when you are carrying an overdue amount. This is the reason why credit cards can also be a disaster because the credit card interest rates are the highest compared to other types of loans. But this is only applicable when you do not pay the total outstanding amount. For example, if the total amount payable for the month is Rs 15,000 and you choose to pay only Rs 5,000, the balance amount (i.e. Rs.10,000) would attract interest generally ranging from 33-42% annually.
All credit card transactions will be taxed as per the prevailing rates in the country so the users should also consider the same. GST is levied on the annual fee, interest payments and processing fees on EMIs currently at the rate of 18%.
9. Balance Transfer Fees
Many credit cards allow cardholders to transfer a balance from another credit card account. Some credit cards even cut borrowers a little break on finance charges for transferred balances, granting them a low or 0% APR for a limited time. This can help you save money if you’re consolidating high-interest debt into a single account with low or no interest.
Avoid additional credit card charges
- If you use your credit card wisely, you do not need to pay all the credit card charges mentioned above. For instance, banks waive off the annual fees from their credit card if the cardholder crosses a certain threshold limit within a period.
- You should also avoid taking cash advances on your credit card because it attracts the highest interest rate. But in the case you need to take out cash in an emergency and even clear it off at the earliest, cash advances start attracting interest immediately and not after the billing date.
- Pay off your card dues on time to avoid the finance charges. One should not make the minimum payment and keep revolving their payment due on the credit card. That would also attract high-interest rates along with late payment fee.
- Experts suggest that making only the minimum payment due should be strictly avoided. If you do so, you are sure to land yourself in a debt trap and it might become very difficult to get out of it.
- You can also pre-pay your bill or even schedule payments through online banking.
- Try to spend within your means when using a credit card. That way you can pay off the outstanding within the payment due date and you will not attract additional late payment fees and interest.
- If you have rolled over your credit and have been only paying the minimum amount due, make sure that you don’t go for any new purchases until you have cleared your credit card dues.
- When traveling abroad, try not to use your credit card, as it charges an additional currency conversion fee, which ranges from 3 to 4 per cent.