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Credit card: Hidden charges you must know about

Credit card: Hidden charges you must know about

The newest entrant into India’s credit card market, IDFC First bank, has highlighted the charges thar credit card users in India end up paying for revolving credit.  While banks may claim a credit card to be free, as they say ‘there are no free lunches’. It is therefore important to know some of the important terms and conditions consumers are mostly unaware of.

Here are some of the commonly levied charges and mistakes that credit card users typically make.

  1. Maintenance Charges: A number of banks offer free credit cards. This usually means the initial joining fee and annual charges are waived off for the first year. Post that, the annual maintenance fee kicks in.
  2. Foreign Transactions: While most leading credit card providers have globally accepted cards, foreign transactions involve additional fees. A percentage of the amount transacted or converted into rupee will be levied as the fee.
  3. Surchages: If you purchase petrol using your credit card, a certain percentage of the transaction value is subject to either 2.5% of the transaction or flat fee of Rs 10 to 25 (whichever is higher) depending upon the bank.
  4. Cash advance fee: Credit card issuers levy finance charges on all ATM cash withdrawals made through their cards and a cash advance fee of up to 3.5 per cent of the cash withdrawn . The finance charges would be levied till all the cash withdrawals are repaid back.

Making ATM withdrawals through credit cards would also lead to revocation of the interest free period on fresh credit card transactions till the cash withdrawals are repaid back.

Sahil Arora – Director, Paisabazaar.com said, users should avoid ATM withdrawals through their credit cards to the extent possible. In case it is totally unavoidable, ensure to repay the entire cash withdrawals at the earliest and refrain from making any fresh transactions through that credit card until then.

5. Availing revolving credit facility instead of EMI conversions

Availing revolving credit on credit cards would attract steep finance charges of 30-49 percent annually on an unpaid bill. It will also lead to the revocation of interest free period on fresh credit card transactions till the repayment of the previous unpaid credit card bills.

Arora said if continued for several months, steep finance charges levied on revolving credit can easily lead card holders to a credit card debt trap. 

“Instead of opting for revolving credit, those unable to repay their entire bill should convert their dues into EMIs. Such EMI conversions come with a much lower interest cost and have tenures ranging between 6-60 months.”

The availability of lower interest rates and wide range of tenures would allow the credit card holders to repay their unpayable dues in smaller tranches, in the form of EMIs, at lower interest cost and as per their repayment capacity,” he added.

6. A duplicate statement fee :While the monthly statements are delivered free of cost to your postal address, if you request for a duplicate statement fee, your card issuer will levy a duplicate statement fee which may range between Rs 50-100

7. Cheque bounce or dishonour of ECS charge:

If the payment on your credit card bounces, your bank will charge you a fixed rate which can be in the range of Rs 300-350. If the bank sends a representative to pick up cheque or cash on the overdue account, additional fee of Rs 100 is added to your next month’s statement.

8. Late payment charges:

Banks charge a flat fee in the range of Rs 100 to Rs 750 when credit cardholders fail to pay the minimum due amount in time. These late payments have a direct impact on the credit score. Additionally, only the payment of minimum due is not a solution.

Credit cards attract double-digit interest in the range of 36 to 42 percent on both the outstanding amount as well as subsequent charges. 

They do not enjoy the interest-free period until the entire amount is paid off.

9.Using credit cards for cash withdrawals:

Credit card issuers levy finance charges on all ATM cash withdrawals made through their cards and a cash advance fee of up to 3.5 percent of the cash withdrawn. The finance charges would be levied till all the cash withdrawals are repaid back. Making ATM withdrawals through credit cards would also lead to revocation of the interest free period on fresh credit card transactions till the cash withdrawals are repaid back. Hence, credit card holders should avoid ATM withdrawals through their credit cards to the extent possible.

Arora from Paisabazaar adds, in case it is totally unavoidable, ensure to repay the entire cash withdrawals at the earliest and refrain from making any fresh transactions through that credit card until then.

As you can see, the credit card you are being offered is not free at all and you are informed about most of the charges.

Knowing about these various fees and charges will put you in good stead and help you use your card sensibly. Make sure you go through the issuer’s ‘Most Important Terms and Conditions’ (MITC) before you apply or accept a credit card. Prudent use of your credit card will also help you keep your credit score intact and keep your overall financial health in order.

(Zaki Sayed is a Mumbai-based independent journalist and business student with a specialisation in marketing. He writes about business, finance and data analytics.)

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