Credit cards do not just offer convenience and financial flexibility to the cardholders but also help them save via rewards, cashback or discount. However, apart from these benefits, credit cards also carry certain fees and charges, which you must take into consideration before choosing a card. A comparative analysis of these charges with the benefits offered plays an important role in determining whether a credit card would be beneficial for you. Ideally, for a card to be a profitable tool, the card fees should not exceed the benefits and consequent savings on your spends. So, in order to make an informed decision, you must first know about some major fees and charges related to credit cards and how you should factor them in, before making a choice.
Annual Fee
When you first get your credit card, generally a joining fee is charged for the first year and an annual/renewal fee is charged from the second year onwards. This fee amount varies from one card to another and is an important factor for credit card comparison. Sometimes, the providers also offer lifetime free credit cards with no such fees. However, in case the provider claims that the card comes with zero joining or annual fee, you must check whether that offer is applicable for just the first few years in the beginning or for as long as you hold the card. Most cards come with annual fee waiver offers as well, where the annual fee is waived off if you reach a certain spending milestone.
Forex Mark-up Fee
Although most cards are globally accepted, there are still certain charges applicable on international transactions called the forex charges or the foreign currency exchange fee. This fee is charged whenever you make a purchase in any foreign currency using your credit card. It can generally go up to 3.5% of the total transaction amount, however there are some cards which offer a lower or zero forex mark-up fee. If you plan to use your credit card for international purchases or during foreign travels then it is preferable to opt for one with no or low forex markup fee.
Finance Charges
Finance charges or interest charges are levied on the unpaid outstanding balance amount past the repayment due date and on credit card ATM cash advances from the date of withdrawal. The credit card interest rate tends to range between 1% to 4% per month, which is considered the highest among all the credit forms. Also, note that when you pay any amount less than the total outstanding on your credit card, new transactions also become ineligible for the interest-free period and start accruing finance charges from the first day. So, it is advised not to withdraw any cash using credit cards and pay all your bills in full and on time to avoid incurring high interest and running the possibility of getting into a debt trap.
Cash Advance Fee
Whenever you withdraw a part of your credit limit as cash via an ATM, such a transaction is charged with a one-time cash withdrawal or cash advance fee. This fee can generally go as high as 2.5% of the total cash amount withdrawn. For instance, HDFC Millennia credit cardholders are charged with a transaction fee of 2.5% of the withdrawal amount or Rs. 500, whichever is higher.
Late Payment Charges
In case a cardholder is not able to repay the complete outstanding amount, there is an option to pay just the minimum amount due on the credit card by the payment due date. However, if the card user fails to pay even the minimum amount by the due date, then the credit card provider charges a late payment fee based on the statement balance past the due date. For instance, SBI Card charges Rs. 400 late payment fee for outstanding amount ranging from Rs. 501 to Rs. 1,000, Rs. 750 for outstanding balance between Rs. 1,001 and Rs. 10,000 and so on.
Overlimit Fee
Usually you are only allowed to spend up to the credit limit assigned to your card, however you may at times be allowed to overspend beyond your credit limit based on your credit profile and the card provider’s policies. Such a spend that exceeds the assigned limit is accompanied by a considerable transaction penalty called the overlimit fee. For example, Axis bank SELECT cardholders are charged with a fee of 2.5% of the overlimit amount or Rs. 500, whichever is higher.
Also Read: Can you use your credit card to buy beyond your card limit?
The above-mentioned are some of the major credit card fees and charges that you must keep in mind while choosing the best-suited one for you. It is always imperative to go through the detailed terms and conditions of the card to know about all the charges that might be levied on usage and understand how the credit card functions. Furthermore, to maximise the benefits, you must make sure that the credit card features as well as the associated charges align with your financial and spending requirements.