Having a credit card may prove to be good financially. A credit card helps an individual build his/her CIBIL score, which in turn helps in getting bank loans, among other things, with ease. Also, a credit card can become the best friend during a money crunch. Nowadays, a credit card is used everywhere; from airport lounge access, life insurance to railway reservation, these cards can turn out to be very helpful. But what people normally ignore is the fact that credit cards do not come for free. They do have charges; some are known to customers while others are hidden. The little-known charges need to be understood to avoid penalties, heavy interest rates, and excess payment charges later on.
– ATM Withdrawals:
Credit card apart from giving ‘credit’ to the customers also offer cash withdrawals from ATMs. However, this facility by banks does not come for free. A transaction charge of around 2.5 per cent of the cash advance is applicable. An interest on the cash from the date of withdrawal will be levied ranging from 24 per cent to 46 per cent per year. Also, cash withdrawals attract immediate interest, unlike other credit card transactions.
– Interest Charge:
A credit card bill displays the total amount that is due and the minimum payable amount – typically 5 per cent of the total dues. A lack of knowledge in the matter can land an individual in a debt trap. A lot of people only pay the minimum payable amount and leave the rest pending. Notably, around 2 per cent to 4 per cent interest rate is applied per month on the remaining amount. The monthly interest rate is annualised to arrive at an annualised percentage rate (APR) of 36 per cent to 38 per cent.
– Annual Maintenance Charge:
When an individual buys a credit card, s/he needs to be clear about the annual charges. Sometimes the annual fee is waived off for a limited period. In such cases, the charges are applied from the second year onwards.
– Late Payment Charges:
A person is penalised if s/he does not pay credit card dues on time. A flat late payment charge is levied and is not dependent on the interest charges.
– GST Rates:
Before GST was implemented, the Service Tax levied on credit card-related services was 15 per cent. However, after GST, the same has been increased by three per cent by the lenders and now stands at 18 per cent.