Credit cards have hundreds of benefits associated with them. Undoubtedly, they are the most valuable financial instrument in today’s scenario. They can help make purchases, clear debts, meet financial commitments, pay bills, and more. However, these cards also come with extra charges. Besides the monthly credit card bill, several fees are applicable throughout the card tenure. Credit card payments should not be made without going through them. Cardholders should know the charges imposed by the issuers. Read on to find out the credit card expenses that often go unrecognized.
Credit card bill and need to understand other charges
Everyone must be aware of credit card bills received for every billing cycle. The credit balance used within a billing cycle is returned to the credit card issuer. After the end of the billing cycle, a grace period is open for the customers. If a credit card user submits the bill within the grace period, they can say nada to interest charges. As a customer pays credit card bills timely, the credit score augments.
Why is there a need to understand all the card charges applied by the issuer?
Some extra charges might seem minimal but add up to a large amount at the end of the financial year. Also, people should be financially literal and know about financial tools like credit cards. By knowing additional card charges, people can choose a reliable issuer that minimises the payment obligations.
Card charges to know in 2022
Here are some charges imposed on a credit card:
- Annual maintenance charges
For some lenders, an annual maintenance charge is often known as the annual fee. As evident from its name, it is applicable only once a year. There is no pre-fixed amount associated with the yearly maintenance charge. The annual fee depends on the issuer and changes for different banks. In some cases, the annual maintenance charge is ignored by the bank/issuer. For example, certain banks offer free cards to trusted customers. During the free period, the customer only has to pay the credit card bill and no other charges. However, this scenario is rare, and most card users are subjected to the annual fee.
Why do issuers/banks apply maintenance fees when they already receive the credit card bill?
They cover the costs incurred in maintaining different accounts with annual fees collected from customers. They also offer several benefits to cardholders on purchases and bill payments. The annual fee collection can also help issuers cover the costs incurred in providing extra benefits to customers.
- Cash advance charges
A cash withdrawal credit card can help withdraw cash during emergencies. However, credit cards can’t be used exactly like debit cards to withdraw money. The customer pays a hefty fee for each cash withdrawal or advance. Usually, the cash advance fee is high and can be around 2.5% of the amount withdrawn. Besides the cash advance charge, issuers levy interest charges on cash withdrawals. Also, the interest charge is applied from the day of cash withdrawal. For many issuers, there is no grace period (interest-free period) on cash withdrawal or cash advance. For the same reason, the cash advance facility should be limited only to emergencies.
- Over-limit charges
For every user, the issuer pre-fixes the credit limit. The pre-fixed amount can be utilized in a billing cycle by the user. However, some issuers allow customers to go beyond the credit card limit. However, moving beyond the credit card limit isn’t free. For spending beyond the available limit, users have to pay over-limit charges to the issuer. Over-limit fees can start from anywhere between INR 500 and INR 1,000. Some banks also apply interest charges on spending credit beyond the available limit. Banks do not allow users to go over the credit limit by default. The customer has to unlock the over-limit facility by requesting the issuer. Anyhow, it is better not to go over the credit limit and eliminate extra charges. The over-limit facility should be reserved for emergencies, just like the cash advance facility.
- GST
Goods & Services Tax (GST) is applicable for credit card users in India. As per the government norms, every user has to pay the tax on their card transactions/payments. GST is applied to the annual fee charged by the issuers. Interest payments for credit card users also include GST charges. Taxes can also be applied to credit card EMI processing charges. Currently, GST for credit card users is pre-fixed at 18%.
Apart from the above charges, card users are also subjected to foreign currency markup charges, late payment charges, duplicate statement charges, card replacement charges, and surcharges. The goal is to search for a credit card issuer that levies the minimum extra charges. Users can also reach out to their current card issuers and know the involved expenses. Know the hidden charges before applying for credit cards!