When looking for a credit card, what is the first thing that attracts you? For most of us, it’s the flashy offers and perks. But there is always a * that says “terms and conditions apply” which should remind you that all the benefits you have seen on the offer page are limited. Despite knowing how important terms and conditions are, we hardly give it a glance, let alone reading the entire page.
The main reason why T&C is so ignored is that we don’t understand it and don’t want to put in the effort to decode a document full of financial jargons. So, here is a guide that will explain important parts of a credit card MITC (Most Important Terms & Conditions) in an easy and understandable manner.
Firstly, a credit card MITC could be a 10-page long document but you don’t need to read every page of it. Given below are the terms you should look for:
|Cardholder Agreement||Introductory Offers||Interest Rate|
|Foreign Transaction Fee||Late Fee||Cash Advance|
|Bill Payment T&C||Add-on Card T&C||Rewards|
A cardholder agreement is a legal document that establishes a contract between the cardholder and the issuer and outlines the obligations both have towards each other. The MITC which includes fees and charges related to the card is, in fact, a part of the cardholder agreement.
There is no set format of the agreement as the terms would differ from one issuer to another. The bank/NBFC may also choose to explain the fees and charges applicable on the card with illustrations.
Your credit card may come with some introductory offers like extra discount with select brands for the first year, no charges on balance transfer for 6 months and the like. These are offered by the card issuers to attract the customers but there are some underlying conditions for those introductory offers which may be related to spending restrictions or offer period. You must read the MITC document to know the terms related to the introductory offers.
Interest Rate/Finance Charges/APR
All of the above terms refer to the interest rate applicable on your credit card. This is mentioned on the bank’s MITC page and may be different for different types of transactions say purchases, cash advances, etc. There are a few important points to note about credit card interest rates:
- Interest is applicable when you do not pay the total amount due on or before the due date.
- Cash withdrawal from your credit card attracts interest from the day of withdrawal (no interest-free period).
- Banks calculate interest on a credit card on the basis of the average daily balance method wherein interest is compounded on a daily basis.
- In case of revolving credit (taking previous dues to the next billing cycle), interest will be applicable on all new debits from the very first day.