In order to use a credit card sensibly, it is very important to be aware of the various charges associated with it. Here are some of the most important credit card fees and charges. Joining fee & renewal fee: Most credit cards come with an annual or joining fee. Credit card issuers charge a joining fee in the first year and then the same amount is charged as an annual fee the following year onwards. This fee may range from `500-5,000 per year. Some cards also waive off your annual and joining fee on spending a certain threshold amount through them. Thus, carefully analyse your spending pattern and opt for a card whose reward points, cashbacks and other benefits outscore your joining/renewal fees by the highest margin.
Finance charges: This charge refers to the interest levied on your outstanding credit card bill on failing to pay your entire outstanding amount by the due date. It is calculated on average daily basis and will be added to your credit card balance on each bill date till the full repayment of your outstanding dues. Even fresh transactions made in the subsequent billing cycle will attract finance charges till the repayment of the entire outstanding. As the finance charges can work out to as high as 45% p.a., make sure to pay your entire outstanding by the due date. However, if you still fail to do so, avoid further transactions through that credit card or convert your outstanding dues into EMIs.
Cash advance fees: Credit cards allow you to withdraw money directly from bank ATMs. However, this facility comes at a high cost. Credit card issuers charge a cash advance fee on cash withdrawals, which can go up to as high as 2.5% of the withdrawn amount per day. Thus, avoid using credit card for cash withdrawals unless there’s an emergency and it’s the only option available. Late payment charges: This charge is levied on failing to pay the minimum amount due mentioned in your credit card bill by the due date. While some issuers like HDFC Bank and Axis Bank follow the slab system, charging Rs 100–700 on the basis of your total outstanding amount, Standard Chartered Bank charges 5% of your total outstanding or Rs 250, whichever is lower, as late payment charge. The only way to avoid this charge is to ensure the payment of minimum amount due by the due date.
Overlimit fee: Credit card issuers may allow their cardholders to make transactions beyond their original credit limit. Cardholders may also breach their credit limits due to the addition of various fees and charges to their total outstanding amounts. In such cases, card issuers charge overlimit fees, which can go up to as high as 3% of the over limit amount. Avoid this fee by closely monitoring your card spends and requesting the issuer to increase your credit limit.
Cash deposit fees: Credit card holders have the option of repaying their dues by depositing cash in their bank branches. However, banks charge a cash deposit fee of Rs 100 per transaction on such deposits. Instead of depositing cash in bank branch or ATMs, use NEFT or intra-bank funds transfer, either at bank branch or through internet banking, to ensure repayment within the same date. Rewards redemption fee: Credit cards issuers allow you to redeem your reward points by adjusting them against purchases made at partner merchant outlets or online stores.
However, many card issuers have started charging for processing redemption of reward points. For example, HDFC Bank charges Rs 75 for processing each redemption request for reward points while Standard Chartered Bank charges Rs 99 for the same. If managed wisely, credit cards can be a cost-effective alternative to debit cards and cash transactions. Analyse the expenditure heads carefully before closing on a particular credit card and spend only what you can repay by the due date.