Credit cards are fast becoming the preferred payment tool for countless users across the globe. However, when used smartly, these shiny cards could be much more than being just another mode of transactions, thanks to many of its useful benefits like cashback on essential expenses (like groceries, petrol, etc.), special discounts on online spends and at restaurants and complementary reward points that can be redeemed for gifts, vouchers and even air miles.
That being said, it’ll be worthwhile to underline the importance of savvy credit card usage and responsible borrowing. And it’s in this context that the knowledge about various fees and charges associated with credit cards becomes crucial. So, in order to help you make the most of your credit card, here’s a list of some of the fundamental credit card charges.
The most basic of credit card charges, this is levied in the case of revolving credit only. Failure to pay off the full amount as mentioned in your credit card statement within the monthly deadline would attract interest on the outstanding amount.
For example, if the total amount payable for the month is Rs 20,000 and you choose to pay only Rs 10,000, the balance amount (i.e. Rs.10,000) would attract interest. Interest will be charged for each successive bill cycle until the entire amount has been fully paid. Interest payable would depend on the card variant and the issuer’s policies, with annual interest charges usually ranging from 40-45%.
Most credit card issuers charge annual fee on particular cards at the beginning of the card cycle and once a year after that. The annual fee is not a fixed amount and varies from card to card. However, there are many cards on which the annual fee is waived or slashed once the cardholder meets certain pre-defined spending or usage targets. Also, there’s no dearth of zero annual fee credit cards in the market. You’ll be well-advised to get complete clarity on the annual fee-related conditions on a credit card and evaluate its worth before signing on the dotted line. It’s always better if you can get something in return, like bonus reward points or other perks, on paying the annual fee.
Foreign Transaction Fee
International transactions usually attract an additional charge known as a foreign transaction fee, which generally ranges from 1-3% of the transaction amount. These charges are levied if you make a payment in a foreign currency or if the transaction you make is routed through a foreign bank. Foreign transaction fees could be levied for everything from withdrawing cash at overseas ATMs to swiping your card at PoS terminals.
A number of banks now issue travel credit cards that waive off foreign transaction fees or limit the charges applicable on certain overseas transactions.
Late Payment Fee
If you’ve missed the due date on a card payment, the bank will levy a late payment charge on the entire amount due. Late fees are usually levied based on the range of the outstanding balance due and differ from bank to bank. Missing your payments for consecutive bill cycles could result in the bank blocking your card. So, it’s always advisable to pay at least the minimum amount due before the due date. That being said, interest charges are levied on the outstanding amount even if the minimum amount is paid. So, it’s best to pay the total outstanding amount every month within the deadline.
Cash Withdrawal Charge
While not an ideal choice, you can use your credit card to withdraw cash but at a cost. Also known as a cash advance fee, the charge could either be a fixed charge or a percentage of the amount withdrawn. Cash withdrawal amounts would depend on your credit limit and are usually capped at 40% of your available credit. It should be noted that cash withdrawals accrue interest right after the amount is withdrawn, with the interest charged ranging from 3-5% of the amount.
Goods and Services Tax
Another reason to pay your credit card bills on time is that 18% GST applies on all credit card fees and charges like interest charges, late payment fee, annual fee, cash advance fee, EMI charges, etc.
Hope this guide will help you make informed financial decisions while you try to maximise the value of your spends with the help of a credit card that best meets your unique requirements.
(The writer is CEO, Bankbazaar.com)