A credit card comes very handy during times of need. At the same time, over utilisation of it can be harmful to your credit score and your bill. There are different types of charges that are applicable when you get a credit card and start using it. Most credit card users are not aware of these charges and hence, are shocked to see them on the credit card bill.
Let’s take a closer look at some of these charges that you might not be aware of:
- Annual Fee
It is common that consumers are offered free credit cards. They are rarely free. The consumer is rarely aware of the annual fee that they have to pay every year to maintain the credit card usage. While the annual fee can be as low as ₹500 and it can go as high as ₹50,000.
The best method to not be stuck in this charge is to read the fine print before signing up for a credit card. You should check how much you are ready to shell out for an annual fee. The benefits that you get with a credit card should be weighed against the annual fees to see if it is worth it. Beware of catchy slogans like “Life Time Free Credit Cards”
- Overseas Transaction Fee
While most credit card companies boast about being globally accepted. One of the most important things to remember is that an overseas transaction fee is applicable when you transact overseas. This fee may vary from one credit card company to another.
Eg: If you make a transaction of US $50 on your credit card. This transaction is converted into INR using the exchange rate present on that day. So, if the exchange rate for that rate is US $ 1= ₹ 70. The transaction then become ₹3500 and the interest is calculated on this number. Let us assume the credit card issuer charges 3% interest with an 18% GST. The interest comes out to be ₹123.90 which then makes the transaction value as ₹3623.90.The best way to deal with this is to compare the interest rates of this fee amongst all credit cards and see which one is the least.
- Interest Charges
There will be times when you may not able to pay the whole amount. In such a situation you may decide to pay the minimum due amount. When you do so, you must know that an interest charge of approximately 3% per month will be charged on the outstanding amount. While it may seem like a small number, but on an annualized basis it can be as high as 36%.
- Overdraft Charges
Some credit cards offer an option to spend over the limit that is assigned on the card. However, the issuing banks charge a hefty fee for such transaction. Eg: even if you spend ₹10 over the limit, you have to pay a minimum fee.
Some banks charge a minimum fee of ₹500 on such transactions. It is a good idea to keep your credit card utilization such that you never jump the assigned spend limit.
- Cash Withdrawal Charges
Everytime you withdraw cash using your credit card, an interest of ₹2.5% will be charged on every cash withdrawal. The interest is charged from the day you make the cash transaction.
- Late Payment Charges
Even if you cannot pay the whole amount, there is an option to pay a minimum amount. If you do not pay the minimum amount, then a late payment charge is applied. It is a good idea to pay the minimum amount on or before the due date, if you cannot pay the whole amount.
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