A credit card allows the cardholder to purchase goods and services on credit and pay it back over time. In addition, it eliminates the need for you to carry cash everywhere and also helps to build your credit score. But being a type of borrowing, a credit card comes with various terms and conditions. Most of us only look at the annual fee of the card but there are several other credit card fees and charges which should also be considered.
Here are the hidden charges and fees that you must know:
1. Annual Maintenance Fee: The annual fee is a yearly fee charged for the convenience of having a credit card. Although, not all credit cards come with an annual fee. Few banks offer free credit card which means that there will be no joining fee or annual fee on the card for a certain time period or for the lifetime. In case the offer is for a limited time, then you will have to pay the fee once the offer expires.
2. Interest cost: If you do not pay the outstanding amount on your credit card within the due date given by the bank, an interest rate is charged on the same. Normally banks charge an interest rate of 3 percent to 4 percent per month on the due amount. While this may not seem exorbitant to you, what sales representative do not tell you upfront is that the monthly interest rate is annualized to arrive at an annualized percentage rate (APR) which can be as high as 36-38%.
3. GST: All credit card transactions are subject to GST as per the prevailing GST rates. GST is levied on the annual fee, interest payments and processing fees on EMIs currently at the rate of 18%.
4. Late payment charges: In case an individual does not pay at least the minimum due amount in time, then the bank will levy an additional charge known as ‘late payment charges’. It is applicable when the amount is paid post the due date.
5. Cash advance fee: Customers have been given the option of withdrawing cash from the ATMs using their credit cards. However, such withdrawals come with charges up to 2.5% of the cash withdrawn. Moreover, you will be also charged interest on cash advances right from the day of making the transaction.
6. Overdraft charges: Depending on which credit card you have, you may or may not be allowed to spend over the limit assigned to you on your credit card. Banks charge a hefty amount as an over-limit fee for such transactions. Even if you cross your credit card limit by Rs 1, your bank will charge you a minimum over limit fee of Rs 500 or 2.5% of the over limit amount, whichever is higher.
7. Foreign currency markup fee: The banks generally do not reveal that there will be extra fees for foreign transactions which are known as foreign currency markup fee. The fee varies from bank to bank and is usually charged as a percentage of the transaction amount. The fee is usually 3.5% of the overseas transaction and is converted to INR depending upon the exchange rate on the day you make the transaction.
Conclusion: So, before applying for a credit card, make sure that you know and understand all the additional charges and fees attached to it. This will put you in a good state and help you use your card prudently.