It is said that nothing in life is free. But everyone of us clamour to procure products and services that come with the term ‘free’. However, there are a few terms and conditions that come with each of these ‘free products’. Similarly if anyone is enticed into purchasing a credit card for free, they must understand that there a few fees and charges attached to it and in effect, are not completely free. Most of these additional charges may not be revealed upfront to customers but will be charged nevertheless.
Prior to acquiring credit cards, customers must first be aware of the following fees and charges that may be applicable.
This is the annual maintenance fee that is applicable for a credit card. In most cases, when individuals are offered ‘free’ credit cards, it may mean that the joining fee and the annual charge has been waived for a period of one year but may be applicable from the following year. Prior to procuring the card, customers must confirm if their annual maintenance charge is waived for a year or for life.
Credit card bill for every month will show the total amount that is due and the minimum amount that is payable. Many individuals choose to only pay the minimum payable amount assuming that the rest can be paid later. But this practise will only result in their falling into a debt trap. Also, 2% to 4% interest rate is charged per month on this remaining amount. The monthly rate of interest is generally annualised to arrive at an APR or annualised percentage rate of 36% to 38%, which is very high. In addition to the nominal rate of interest, this annualised percentage rate can result in quite a burden for the individual. Hence, all potential credit card holders will have to strive to pay their bills in full and not just the minimum amount due.
All credit card transactions are subject to GST as per prevailing GST laws.
In case a cardholder does not pay his/her due in time, additional charges will be levied which is called the late payment charge. This is applicable when the customer defaults in their payment of monthly credit card due post the due date. This is a flat fee amount and is not dependent on the interest charges.
When customer exceeds the monthly credit limit that is applicable on their credit card, these charges are applicable.
In case customers make an overseas transaction using their credit cards, foreign transaction charges are levied. This is around 3% to 5% of the overseas transaction and is then converted to INR based on the exchange rate depending on the date of transaction.
Purchasing rail tickets or petrol using credit cards attracts additional charges. This is a set percentage of the amount that is spent.
In case individuals use outstation cheques to settle credit card bills, additional charges would be levied. This is a fixed percentage based on the slab within which the bill amount falls under.
In case a cheque that has been issued for the payment of credit card bills bounces, additional charges will be applicable.
In case a customer has lost his/her credit card, a new card will be issued once penalty charges have been paid.
Customers have the option of withdrawing money from the ATM using their credit card. However, the transaction charges applicable would be around 2.5% of the cash advance. In addition to this, interest on the cash from the date of withdrawal will be due and this interest cost may vary from 24% to 46% per year.
Therefore, although credit cards come with numerous advantages, customers must ensure that they understand all the hidden charges that come with it, prior to availing one.
*GST rate of 18% applicable for all financial services effective July 1, 2017