Credit cards, if not used wisely, can not only accumulate debt but also additional fees that can seriously damage your financial wallet. It is not only important to maintain good credit card habits to avoid paying excessive penalties, but also to maintain a good credit rating. Credit card activity and the repayment account are an important part of your credit score, and failure to be disciplined can cause your score to drop.
To avoid paying excess fees, here are some important fees and charges to watch out for when using credit cards:
1. Membership or annual subscription
Some credit cards are free, meaning no membership fees and waiver of annual dues for a given period. But those that offer bigger rewards and perks usually tend to have membership fees, especially if your salary or income doesn’t meet the required criteria. Some may waive membership fees for the first year, but introduce them from the second year. These fees, however, are waived if one spends up to a threshold specified by the bank.
2. Cash withdrawal fees
You can withdraw money from ATMs with your credit card, but the option should only be exercised in an emergency. Although there is an interest-free period for all other transactions, the interest rate applies immediately for such cash withdrawals. If you use this option, try to pay it off as soon as possible to avoid the high interest rate.
3. Interest charges
Most credit cards offer an interest-free period to pay for all expenses. Some premium cards incur finance charges regardless of where and when the card is swiped. But after the interest-free period has passed, banks will charge interest / finance charges at the customer’s expense if full payment is not made on time.
Credit card fees charged by major banks:
|Bank||Interest / finance charges after the interest-free period||Late payment fees||Over limit fees||Foreign transaction fees||Cash withdrawal fees|
|SBI||3.35% per month||Up to Rs 750||2.5% of the amount of the overrun or Rs. 500, whichever is greater||1.99% to 3.5%||2.5% or Rs. 300 whichever is greater at domestic ATMs and 3% or Rs. 300, whichever is greater at international ATMs|
|HDFC Bank||Up to 3.5% per month||Up to Rs 750||2.5% of limit violation
amount subject to a minimum of Rs 500.
|2.5% to 3.5%||2.5% of the amount withdrawn or Rs 500 whichever is greater|
|ICICI Bank||2.49% to 3.5% per month||Up to Rs 750||2.50% on the amount of the overrun (subject to a minimum of Rs 500)||
|2.50% on the amount advanced, subject to a
minimum of Rs 300
|Axis Bank||2.5% to 3.25% per month||Up to Rs 700||3% of the over limit amount (Min. Rs. 500)||
|2.5% (Min. Rs. 250) of the
|KOTAK Bank||2.49% to 3.5% per month||Up to Rs 700||Rs 500||
|Up to Rs 3.5%, minimum Rs 300|
|YES Bank||1.2% to 3.22% per month||Up to Rs 700||2.5% of the amount of the overrun or Rs 500 (whichever is greater)||
|2.5% transaction fee (Minimum 300)|
Note – Data taken from the respective bank’s website as of May 31, 2018
4. Late payment and over-limit fees
Late payments on your credit card can delay you in several ways. First, your credit score is affected and second, you have to pay late fees whenever you are late in paying dues. In the event that you do not have the full amount to pay off your card, make sure you pay at least the minimum amount due, in order to avoid late penalties.
Additional charges also apply if you exceed your credit limit or cash withdrawal limit. Normally, a percentage of the excess expenses is charged as a penalty.
5. Foreign transaction fees
Whenever a credit card is used for transactions abroad, whether online or at a point of sale, the bank charges an overseas markup fee. It varies between 1.5% and 4%, depending on the bank and the card. Foreign cash withdrawals are charged at a higher rate than card swipes. So, when abroad, you can take enough cash or obtain a travel card to avoid these charges.
(The author is CEO, Bankbazaar.com)