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Credit cards are a lot more than just an alternative payment tool, they allow users a pre-set credit limit for their purchases. The concept of instant credit-based transactions garnered a lot of popularity for this instrument. And while it is a useful tool, it would be best if you used it smartly to make the best of it. Undoubtedly, credit cards have several benefits, such as cashback on your expenses, particularly big-ticket items, they also have special concessions and reward points on online spending that can be redeemed easily. A credit card can also help you build a decent credit history, permitting you to get loans at favorable interest rates.
But there is also a need to be cautious. Credit cards come with various terms and conditions. And if you are not careful, instead of getting benefits, a credit card may become a financial burden. Most people usually look only at the annual fee of the card. But there are other credit card charges that you should consider before applying for one. Hence, to make the most of your credit card, here is a list of the major credit card charges you must keep in mind.
1. Interest Charges
These charges are the most basic charges of a credit card. Know that using a credit card is essentially taking a loan to make a payment. Hence, just like any loan that attracts interest, credit cards, too, attract interest if you fail to make the complete payment in one go. For example, suppose your credit card bill amount is Rs. 25,000 for a previous billing cycle. You attract interest if you decide to make a partial payment, either a minimum due or less than that, as per the bank’s policy.
2. Annual Fee
Many credit card issuers charge annual fees on specific cards at the card cycle’s commencement and every year after that. This fee is not a fixed amount and differs from one card provider to another. However, there are many cards on which the annual fee is waivered or reduced once the cardholder meets certain pre-defined expenditure or usage objectives. As such, you should gain much clarity on your card’s yearly fee details. You should evaluate the card’s worth before signing on the dotted line. It is always best to evaluate your options of getting the most out of the deal like extra reward points or other bonuses on paying the yearly fee.
3. Cash Withdrawal Charge
Though this is not an advisable option, you may use your credit card to withdraw cash on rare occasions. However, this comes at a cost. This cost is known as a cash advance fee. The fee could be a flat fee or a fraction of the amount withdrawn. The interest rate for cash withdrawals accumulates right after the amount is withdrawn.
4. Overseas Transaction Fee
Transactions outside your country usually attract an additional charge, identified as a foreign transaction fee. This fee is usually about 3% of your transaction expense. These charges are imposed if you make a payment in an overseas currency or if the transaction you make is directed over a foreign bank. Foreign transaction fees may be charged for everything from withdrawing cash at ATMs to swiping the card at the point of sale (PoS) stations. Many banks now issue travel credit cards that waive off overseas transaction fees.
5. Late Payment Fee
If you miss the due date on a card payment, the bank will charge a late payment fee on the total amount due. Late fees are usually based on the unpaid balance due and vary from bank to bank. Missing your payments for successive bill cycles could lead to the blocking of your card by the bank. Therefore, it is always advised to pay the minimum amount due before the due date.
6. GST Charges
All credit card transactions are taxed a service charge as per the country’s regulations. Since the introduction of goods and service tax (GST) in India, Indian citizens are charged 18% GST on their credit card transactions. This GST is applicable on the annual fee, interest payments, and processing fees on EMIs.
The charges mentioned above are fees applicable on credit cards of almost all banks. A few basic cards offer free memberships, with no yearly fees for the first month of purchase. The costs are also based on the card category you choose.
Further, it is essential to regularly check your credit card report to spot any unapproved charges or billing miscalculations. Use this article as a guide to making an educated financial decision if you intend to get a credit card that meets your unique requirements