Credit cards can be great for making purchases and earning potential rewards. At the same time, it also helps in building your credit history. However, there is no such thing as ‘free credit card’. Being a type of borrowing, credit cards also come with various terms and conditions. Most of the users only look at the annual fee of the card but there are several other credit card fees and charges which should also be considered.
1- Annual Maintenance Charge
This is popularly known as ‘annual fee’ and is not really a ‘hidden’ charge. The annual fee is charged once in a year and the amount varies card to card. Sometimes, banks offer free credit cards which means that there will be no joining fee or annual fee on the card for a certain time period or for a lifetime.
|What to Watch Out For? |
When you are offered a ‘free’ credit card, you must confirm with the bank whether the card will remain free of annual maintenance charges for a lifetime or just for a few years.
2- Cash Advance Fee
A part of your total credit limit is given to you as a cash limit. This is the amount you can directly withdraw from the ATM using your credit card. Cash withdrawal or cash advance is quite a costly transaction as it entails fees as high as 2.5% of the amount withdrawn. Moreover, what many users do not know is that interest is charged on cash advances right from the day of making the transaction; the interest-free period does not apply for cash withdrawals.
The table given below shows cash advance fee on some popular credit cards-
Cash Advance Fee
|HDFC MoneyBack Credit Card||2.5% of the amount withdrawn or Rs.500 whichever is higher|
|SBI Card SimplySAVE||At Domestic ATMs- 2.5% of the transaction amount, subject to a minimum of Rs.300|
At International ATMs- 3% of the transaction amount, subject to a minimum of Rs.300
|Citi Cashback Credit Card||2.5% on the amount withdrawn, subject to a minimum of Rs.500|
|ICICI Platinum Chip Card – Visa||2.50% on the advanced amount, subject to a minimum of Rs.300|
|RBL Platinum Delight Credit Card||2.5% of the cash amount (Min Rs.100)|
Suggested Read: Reasons Why You Should Avoid Credit Card Cash Advance
3- Over-limit Fee
Depending on your credit card type, you may or may not be allowed to spend over the limit assigned to you. Banks do not allow this for free- they charge a hefty amount as the over-limit fee for such transactions. For most of the banks, a minimum of Rs.500 is charged but it also depends on the amount by which you have crossed your credit limit.
|Pro Tip: Always maintain a credit utilization ratio of less than 30% on your credit cards. A low credit utilization ratio improves your credit score as it is the second most important factor that bureaus consider after your payment history.|
4- Late Payment Charges
If you are not able to pay the entire outstanding amount on your credit card, banks give you the option of paying a minimum amount. In case you cannot afford to pay even the minimum amount, the bank will levy a late payment fee. A flat amount is charged on the basis of your statement balance. For example, let us look at the late payment fee applicable on HDFC Credit Cards-
Late Payment Fee
Less than Rs.100
Rs.100 to Rs.500
Rs.501 to Rs.5,000
|Rs.5,001 to Rs.10,000|
|Rs.10,001 and above|
5- Interest Rate (APR)
The Annual Percentage Rate (APR) charged on your credit card also affects your bills, especially when you are carrying an overdue amount. This is the reason why credit cards can also be a disaster because the interest rates on credit cards are the highest compared to other types of loans. But this is only applicable when you do not pay the total outstanding amount. For example, if the total amount payable for the month is Rs 15,000 and you choose to pay only Rs 5,000, the balance amount (i.e. Rs.10,000) would attract interest generally ranging from 33-42% annually.
All credit card transactions will be taxed as per the prevailing rates in the country so the users should also consider the same. GST is levied on the annual fee, interest payments and processing fees on EMIs currently at the rate of 18%.
7- Foreign Currency Mark-up Fee
Although credit card issuers promote that their cards are globally accepted but they never reveal that there will be extra fees for foreign transactions which is known as foreign currency mark-up fee. The fee may differ from one card to another and is usually charged as a percentage of the transaction amount. Let us understand this with the help of an example.
Suppose you spend US $30 on a certain item through your credit card. This amount will be converted by the bank into INR as per the exchange rate of the day and charge mark-up fee on the amount. Now, say the exchange is US $1 = Rs.60, then the transaction amount will be Rs.1,800 and if a mark-up fee of 2% is charged on it, it will be Rs.36 plus 18% GST will be charged on it which is equal to Rs.6.48. So, the total value of the transaction will be Rs.1,842.48.
The foreign currency mark-up fee on some popular credit cards is mentioned below-
|Foreign Currency Mark-up Fee|
|2% of the transaction value|
|1.99% of the transaction value|
|Citi Rewards Credit Card|
3.5% of the transaction value
|Axis Bank Vistara Infinite Credit Card|
3.5% of the transaction value
These are some fees and charges applicable on all credit cards by all banks. A user can also leverage on low fees and charges to make the most of his credit card. For example, a credit card with low foreign exchange mark-up fee would be better to use for purchases on foreign websites or in a foreign country.
Credit Card Charges to be paid during Moratorium
As per the recent notification of the Reserve Bank of India (RBI), banks are permitted to grant a moratorium for payment of all credit card dues falling between 1st March 2020 to 31st August 2020. This step was taken by RBI to reduce the burden of the borrowers in the economic upheaval caused by COVID-19 pandemic. However, the interest will continue to accrue on the unpaid dues during the moratorium period.
Disclaimer: The details of credit card moratorium will be updated as and when received from the bank
How will interest be calculated if you opt for a moratorium?
As per the moratorium relief, if you don’t pay your credit card bill for 3 months, the bank will levy interest as it normally does on the outstanding amount, however, the bank will not levy any late payment charges. Let’s see a basic illustration of how the interest is calculated.
|Example of a credit card statement|
|Transaction Date||1st March 2020|
|Statement Date||7th March 2020|
|Minimum Amount Due (generally 5%)||Rs.750 (5% of Rs.15,00)|
|Total Amount Due||Rs.15,000|
|Amount Due Date||27th March 2020|
|Assumed Monthly Interest||3.35%|
When you opt for Moratorium- Bill payment before the due date after 3 months:
- Total Transaction- 15,000 as on 1st March 2020
- Next Amount Due Date- 27th June 2020
- Next Statement Date- 7th April, 7th May, 7th June (the statement is issued every month)
- Transaction done between 7th March to 7th April: Nil
- Transaction done between 7th April to 7th May: Nil
- Transaction done between 7th May to 7th June: Nil
|How much interest will be charged?|
|Interest levied for 7 days (1st March- 7th March)||7*15,000*3.35*12/365/100= 115.6|
|Interest levied for 31 days (8th March- 7th April)||31*15,000*3.35*12/365/100= 512.1|
|Interest levied for 30 days (8th April- 7th May)||30*15,000*3.35*12/365/100= 495.6|
|Interest levied for 31 days (8th May- 7th June)||31*15,000*3.35*12/365/100= 512.1|
|Total Interest Charged (Rs.)||116 + 512 + 496 + 512= Rs.1636|
|Total Amount payable after 3 months||Rs. 16,636 (Rs.15,000 + Rs.1636)|
These are some fees and charges applicable on all credit cards by all banks. You can also leverage on low fees and charges to make the most of your credit card. For example, a credit card with low foreign exchange mark-up fee would be better to use for purchases on foreign websites or in a foreign country. You need to try to maximise the value of your spends with the help of a credit card that best meets your financial requirements.