“There is no such thing as a free lunch” is a popular phrase, meaning that it is impossible to get something for nothing. But everyone of us crave to buy products or services that come with the tag ‘free’. However, there are some fine prints that come with each of these ‘free’ tagged products or services. So if you are purchasing a credit card for free, you must understand that there are some term and conditions attached to it and thereby, are not completely free. Most of these charges may not be unfolded upfront to the customers but you take stock of them once you are about to use any of the other features attached to it.
Fees and Charges applicable on a Credit Card
Before you enroll for a credit card, you must first be aware of the following fees and charges that are applicable.
1. Annual Membership Fees
This is a fee charged to your credit card once in a year. Mostly, when you are offered a ‘free’ credit card, it may mean that the joining fee or the first year membership fee has been waived but may be applicable from second year onwards. Before you sign off the application form, ascertain if the card is free for life or for just the first year. Also, inquire about the amount of annual fee applicable from second year onwards. Check for the waiver incase of reaching a milestone on spending.For example, Citibank Rewards credit card waives the annual fee of Rs1000 on making spends of Rs.30,000 in a membership year.
2. Finance Charge
Interest will be charged if you do not pay back the previous bill in full by the payment due date (as per credit card statement) and also on all Cash Advances. This is called finance charge or Interest Charge. Interest will be charged from the date of transaction until the date of full settlement. Your Credit card bill for every month will mention the total amount that is due and the minimum amount that is payable on or before the due date. You can choose to only pay the minimum amount due with an assumption that the balance amount can be paid later. But this practise will lead to you falling into a debt trap. Also note that, 2% to 4% interest rate is charged per month on this balance amount.
Illustrative Example for Interest Calculation:
Assuming that you have partially paid your February credit card bill, and your statement is generated on 17th March for Rs. 5000.You make a payment of Rs 2000 on 25th March. And you make a purchase for Rs 1000 on 30th March. You make no further payment on your Card till 17th April. Assuming an interest rate of 39.00% per annum in this example, interest will be levied as follows:
On the balance of Rs 5000 (18th – 24th March) for 7 days: (39.00)*(7/365)*5000/100= Rs 37.40
On the balance of Rs 3000 (25th – 29th March) for 5 days: (39.00)*(5/365)*3000/100= Rs 16.03
On the balance of Rs 4000 (30th March – 17th April) for 19 days:(39.00)*(19/365)*4000/100 = Rs 81.21
Total Interest charged = Rs 134.63
Hence, all credit card holders should strive to pay their bills in full and not just the minimum amount due.
3. Goods & Service Tax(GST)
Goods and Services Tax (GST) at rates as notified by the Government of India is applicable on all fees, interest and other charges and is subject to change.
4. Late Payment Charges
Late Payment Charges will be applicable if you do not pay even the Minimum Amount Due on the card on or before the Payment Due Date. Late payment charges are levied based on the current balance on your card on or within 3 days post the Payment Due Date. This is a flat fee amount and is not dependent on the interest charges. For example, for citibank cards, late payment charges are:
- Rs.300 for current balance up to Rs.10000
- Rs.600 for current balance from Rs. 10001 – 25000
- Rs.950 for current balance above Rs.25000
5. Over Credit Limit Charges
Every credit card has a spending limit allowed, which is called credit limit. When you exceed the monthly credit limit that is applicable on your credit card, the transaction may be allowed but with a charge. For example, in Citibank credit cards, it is 2.5% (minimum of Rs 500) of the amount over the Credit Limit
6. Foreign Transaction Charges
Whenever you use your credit card for overseas transaction, foreign currency transaction charges are levied. Foreign currency transactions will be billed in Indian Rupees, using exchange rates, published by Card networks, on the date of settlement of transaction and not on the date of the transaction. The billed amount will include the Indian Rupees equivalent transaction amount, mark-up levied by the bank and applicable Goods and Services Tax (GST). For international transactions effected in US Dollars,3.5% on the INR equivalent of the US Dollars, at the conversion rates published by the card networks. In case of Citibank credit cards, for international transactions effected in non-US Dollar currency, the transaction would be first converted into US Dollars, at the conversion rates published by the card networks. On the converted US Dollars amount, 3.5% would be levied on the INR equivalent of the US Dollars, at the conversion rates published by the card networks.
7. Petrol Transaction Charge
When you refill your vehicle with petrol at a refilling station using a credit card, it attracts additional charge. For example, when you use a citibank credit card, 2.5% of the billed amount is charges (minimum of Rs.10). It is however, waived at Indian Oil Outlets for transactions done on Citibank EDCs(swipe machines).
8. Railway Ticket Booking Surcharge
When you book a railway ticket through your credit card either at the railway reservation counter or online, you get charged an additional fee called railway ticket booking surcharge.
For example in citibank credit cards,
Railway Ticket Booking or Cancellation Surcharge (Counter booking) 2.5% of transaction value (minimum of Rs.25)
Railway Ticket Booking Surcharge (Internet booking) 1.8% of transaction value for regular transactions; 2.8% of transaction value for 3 EMI transaction
9. Outstation Cheque Charges
If you pay your credit card bill through an outstation cheque, additional charges called outstation cheque collection charges would be levied. This is a fixed percentage based on the slab within which the bill amount falls under. For example, Citibank charges,
- Upto Rs.10000 – Rs.50 per cheque
- Rs.10001 to Rs.100000 – Rs.100 per cheque
- Above Rs.100001 – Rs.150 per cheque
10. Return of ECS/Cheque Charges
In you make payment of your credit card bill and it gets returned unpaid, additional charges are be applicable. It is usually a flat charge per returned cheque/ECS.
11. Charges for Reissue of Lost/Stolen/Damaged Card
In case your credit card has been stolen/lost/damaged, usually a flat fee of Rs.100 is charged for reissue of credit card.
12. Cash-Advance Charges
Also know as ATM withdrawal charges, are the ones you are billed for using your credit card to withdraw cash from any ATM. However, a cash-advance fee of around 2.5% of amount withdrawn is applicable. In addition to this, all cash withdrawal attract interest from the date of withdrawal the interest rate may vary from 24% to 46% per year.
13. Credit Card Statement Charges
Although, you get a free statement though post or email, but of you request for a credit card statement usually beyond 3 months, a flat fee of Rs.100 may be levied.
14. Cash Deposit Charges
Your credit card is a running credit limit with the bank. You have option to deposit cash at bank branch or in ATM towards your billed amount. But, this is chargeable usually at Rs.250 if cash deposited at bank branch and Rs.100 if deposited at ATM.
Therefore, credit cards come loaded with advantages, but you must read and understand all the charges that are bundled with it, prior to availing one.