If you think that credit card comes free and there are no charges applicable, you are wrong. There are many charges that are levied on a credit card and if one is not careful, a credit card would prove more expensive. In fact, any benefits like usage points accumulated on a credit card would be negated by the charges applicable on them.
Some of the charges levied on the credit card are mandatory, while some other charges are levied on account of the indiscipline of the user. Here are 5 fees on a credit card that you should know:
1. Annual fee
This is a fee that is levied on a credit card and the charges and policy regarding the same vary from bank to bank. For example, some banks reverse the annual fee, if the amount spent every year is over and above a particular amount.
For example, if Bank A charges a sum of Rs 750 as annual fees, it may have a policy to waive off the same, if you spend Rs 1 lakh annually on the card. This really varies from bank to bank.
2. Interest on credit card outstandings
The interest charges on the outstandings on a credit card has one of the highest interest rates. The interest rates can be as high as 40 per cent per annum.
For example, if your credit card outstanding is Rs 1 lakh and your making just 10 per cent of the payment due every month, you can end-up paying a massive amount in interest charges. Every month you need to pay the entire amount outstanding on the due date, so as to avoid huge charges.
3. Fees for cash withdrawal on the card
There is also a fee that is charged for withdrawing cash on your credit card. Every credit card comes with a cash withdrawal limit. If you withdraw cash using your credit card there is a charge of 2.5 per cent. Apart from this, you need to pay interest on the cash withdrawn amount from day one. Both these charges can result in exorbitant amounts for the user.
Sometimes a surcharge is levied on transactions like fuel. So, if you are filling petrol or diesel, please note whether there is a charge or not by your bank. Some banks waive off the fuel surcharge. Before selecting a credit card, you need to keep the same in mind, if you are regularly going to fill fuel using the credit card.
5. Overseas transactions
Overseas transactions can attract charges. So, one has to be careful when using the credit card overseas. If you are using the same domestically, you can cancel international usage. We wish to emphasize that these charges can be a lot.
About the author:
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, commodities, debt, mutual funds and tax planning. Sunil is currently Managing Editor for Goodreturns.in