There are several banks and NBFCs in our country that offer Credit Cards to customers for free. The reality is quite different from what they say. Credit cards that are offered as free usually have hidden charges that are not visible to the cardholders. It is therefore very important to understand a few key terms and conditions.
The banks and their sales representatives usually do not clearly explain the fees that will be applied to the card in the future. Hence, it is important that we learn today what kind of fees these cards come with.
Types Of Hidden Charges
Interest: There are two ways of making credit card bill payments: paying off the entire bill amount before the due date of every billing cycle or paying the minimum amount due for the billing period. If only the minimum payment is made and there is a balance owed on the card, a high interest rate of 3% to 4% per month is charged on the total outstanding. This interest rate adds up to 36 to 48% per annum, which is significantly higher than what the bank claims to offer at the time of sale.
Late payment fee: If you are late in making the payment by the due date, then you are subjected to late payment penalties by the banks. Late payment charges could be anywhere between Rs.50-Rs.500 per instance. This is common practice by all banks and financial institutions, and users should be aware of their payment schedules and due dates to avoid such penalties.
Goods and Services Tax (GST): As per government rules, any transaction that is made using a credit card is subjected to GST, which is 18% of the total bill amount. The cardholder ends up paying for this on his purchases.
Annual fee: Also known as the annual maintenance fee, this charge is applicable every year you renew your card. This is also known as renewal fees by some credit card companies. Most companies waive off this annual fee for the first year of card issue as a welcome benefit or joining bonus. Users should not assume that it will be waived off in coming years too. The card statements for the subsequent years will reflect this charge as “Annual Maintenance Charges” and will be charged only once a year. So keep an eye on your statements to see which month the bank bills you for it.
Balance transfer charges: Most credit cards allow you to transfer balances from one card to another. If you have two cards from two different banks and one has a higher balance to be paid with a higher rate of interest than the other, you can transfer either a part or the entire amount from that card to the one with a lower rate of interest. The balance transfer also depends on the available credit limit on the receiving card. A fee of 3% is applicable to all these types of transactions.
Overseas transaction charges: Any transaction that is made by the cardholder outside of their home country is chargeable. The cost of these international purchases is set at 3% interest on international purchases.
Overdraft Fee: A few privileged cardholders get the benefit of going over their available credit limit to make certain purchases by a certain amount. Such a facility is chargeable and the amount of the fee for going overdraft is included in the monthly bill.
Cheque return charges: If you make a payment on your credit card using a cheque, then ensure that there is sufficient balance in your bank account to let the cheque clear. If the cheque is returned for any reason (insufficient funds, signature mismatch, unsigned cheque, etc.), then the bank charges Rs. 100 as a fee for any such reason.
Fee for printed billing statement: Nowadays, most banks have started going green and have started sending electronic statements for every billing period. However, if you request a paper statement after one has already been sent to you, be ready to pay for it. There is a charge for requesting a second statement for a billing cycle.
Cash withdrawal charges: All banks allow you to use your credit card as an ATM card and withdraw cash at the ATM. Just like a credit limit, there is a limit on how much cash can be withdrawn using the credit card. There is a fee charged for it, which is usually between 2.5% and 3% of the amount withdrawn. This is also subject to a minimum cost, which is between Rs. 300 and Rs. 500, depending upon what the bank has decided.
Credit card is a very convenient financial tool that provides an additional line of credit. Since there are no restrictions on where you can use the credit card, consumers prefer this convenient form of unsecured loan to meet their monthly spends. However, credit card companies levy a host of hidden charges and fees, that most users are not aware of, that results in high outstanding dues for the consumers.
Credit card users have to be vigilant and understand all possible charges and fees they could incur on their credit card so that they can use it wisely and save costs.