There is no such thing as 'free' credit cards. Most of the charges associated with your card are not even told upfront to you.
Knowing about these various fees and charges will put you in good stead and help you use your card prudently.
The lure of a credit card is hard to keep away from, especially when a sales representative from a bank or a retail outlet makes a convincing pitch about you getting a ‘free’ credit card. But did you know that the credit card you are being promised is anything but free?
What credit card sales representatives do not tell you is that there are a whole host of charges that are applicable to them. Here are the various charges on credit card, you should know about before you agree to apply for one.
The annual maintenance fee
When you are told you are being given a free credit card, it probably means that the joining fee and the annual fee has been waived off for a maximum period of one year from the date of issuance, but after this initial period the annual maintenance fee is applicable to your card. This could range from Rs 1500 to Rs 3000 in a year.
If you do not pay the whole of the outstanding amount within the due date stipulated by the bank each month, an interest rate on the expenses incurred on your card is charged at the rate of 3 per cent per month.
While this may not seem exorbitant to you, what sales representatives do not tell you upfront is that the monthly interest rate is annualised to arrive at an annualised percentage rate (APR) which can be as high as 36-38 per cent.
Overseas transaction cost
Your bank will also charge you for every overseas transaction you make. This is usually 3.5 per cent of the overseas transaction and is converted to INR depending upon the exchange rate on the day you make the transaction.
Cash withdrawal on credit card
The transaction charges on cash withdrawal are as high as 2.5 per cent of the cash advance. Over and above this you need to pay an interest on the cash right from day one, and this interest cost ranges from 24-46 per cent per annum.
Cost for crossing card limit
Even if you cross your credit card limit by Rs 1, you bank will charge you a minimum over limit fee of Rs 500 or 2.5 per cent of the over limit amount, whichever is higher.
Late payment fee
The Reserve Bank of India has recently come out with the diktat that banks must revisit the late payment charges on overdue amounts on credit cards. While this may relieve the burden of the card user by a tad, penalties are still applicable. Therefore, if you turn delinquent and do not pay your minimum amount due for more than 90 days you will be charged a late fee by your bank.
For amounts between Rs 500 to Rs 20,000 the amount will be in the range of Rs 100-600 while for amounts over Rs 20,000 the amount will be in the range of Rs 700-800.
A duplicate statement fee
While the monthly statements are delivered free of cost to your postal address, if you request for a duplicate statement fee, your card issuer will levy a duplicate statement fee which may range between Rs 50-100.
Card replacement fee
If you lose your card, your bank will charge you a card replacement fee. This can be between Rs 250-300.
Cheque bounce or dishonour of ECS charge
If the payment on your credit card bounces, your bank will charge you a fixed rate for the same which can be between Rs 300 to Rs 350. If the bank sends a representative to pick up cheque or cash on the overdue account, another fee of Rs 100 is added to your next month’s statement.
If you purchase petrol using your credit card, a certain percentage of the transaction value is subject to either 2.5 per cent of the transaction or flat fee of Rs 10 to Rs 25 (whichever is higher) depending upon the bank. Some banks offer a waiver on the fuel surcharge but these are for certain specified bands say between Rs 400 to Rs 4,000. Therefore any transaction below Rs 399 or over Rs 4000 will continue to be charged as usual.
Up until now, the service tax levied on service charges was 12.36 per cent. However, while presenting the budget for the year 2015-16, Finance Minister Arun Jaitley announced that the service tax will be hiked to 14 per cent. This means your credit card transactions will now become costlier as well.
Thus as you can see, the credit card you are being offered is not free at all and most of the charges you are not even told upfront. Knowing about these various fees and charges will put you in good stead and help you use your card prudently.
Make sure you go through the issuer’s ‘Most Important Terms and Conditions’ (MITC) before you apply for the card. Prudent use of your credit card will also help you keep your CIBIL score intact and keep your overall financial health in order.
Illustration: Uttam Ghosh/Rediff.com
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.