New Delhi: Credit cards are increasingly becoming popular among the urban population. A lot of people these days prefer using credit cards due to the convenience quotient. Credit cards provide instant money during emergencies and offer you payment flexibility as well. However, there are some charges associated with these cards which are very high. Hence, one should be aware of these charges before using them to ensure that they do not end up losing money.
Here’s a list of credit card charges that you need to know:
1. Finance charges: Credit card issuers levy finance charges which is basically Credit card interest rates. These charges vary from lender to lender and may also vary across different credit cards from the same issuer. Every credit card has a preset finance charge and it will be the same for all the customers. Also, the interest is charged on credit cards only if you have not paid the outstanding amount in full.
On failing to repay outstanding credit card dues in full, the unpaid bill amount attracts hefty finance charges in the range of 23-49 per cent. Withdrawing cash from ATMs using the credit card also attracts charges. No interest is charged when you clear your credit card dues on time.
2. Annual maintenance fees: Most of us at some point have gotten calls from banks or credit card companies saying, “We are offering you a free credit card.” What this actually means is that the bank is waiving off the joining fee and annual charges for the first year. Post that, the annual maintenance fee kicks in. 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. Before you confirm, check in advance if the card is free for just the first year or its entire lifetime.
3. Cash advance/withdrawal fee: Credit cards allow a user to withdraw cash from an ATM machine but it is a big no-no for the added charges it attracts. Withdrawing cash on credit card entails interest from the time the transaction is made, as high as 2.5 per cent of the amount withdrawn. This fee, along with the finance charges makes a strong case for avoiding cash withdrawals through credit cards to the extent possible. The finance charges on credit cards can be as high as 49.36% per annum depending on your card. This means that withdrawing cash from your credit card will cost you and may burn a hole in your pocket, especially if the repayment is not made for a prolonged period.
4. Late payment fee: Banks charge a flat fee when credit cardholders fail to pay the minimum due amount in time, and late payments attract a heavy penalty. Typically, the minimum amount due is calculated as 5 per cent of your outstanding balance. However, it can be higher if you bought something on EMI through credit card, or spent more than the credit limit, etc. Failure to repay the minimum amount due 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.
5. Over limit fee: Exceeding the limit assigned to your credit card comes at a cost. Whether you cross the limit by one rupee or thousands, overdrawing your account will attract charges at a minimum of Rs 500, or more depending on the bank.
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 per cent the amount over the limit.
Worth mentioning here is that credit card issuers also charge a foreign currency mark-up fee of 1.99-3.55 per cent on using credit cards for overseas transactions, both online and offline. This is why cardholders making frequent overseas transactions areadvised to opt for prepaid forex cards as these cards levy zero marks up fee on foreign transactions within the jurisdiction of the loaded currency.