There were over 62 million active credit cards in India in 2021. This number is growing by the hour. More people are becoming habitual in using credit cards. There are different factors at play here. Rewards points and discounts are among the most crucial factors behind the growing adoption of credit cards. Why will you pay a higher amount for the same product/service when it’s available for a discount? All you need to do is choose a different payment method; the main reason why people are switching to credit card payments.
Credit cards help with urgent short-term obligations without taking a loan. However, over the past two decades, it has become a dominant payment method. The benefits offered by credit cards have also increased exponentially. People can earn rewards and loyalty points for their purchases. These can either be redeemed for cash or discount coupons. However, evaluating the costs associated with using a credit card is also essential. There are different types of credit card charges applicable in various circumstances. Let’s take a quick look at different credit card charges.
Types Of Credit Card Charges
There are various costs associated with a credit card. Unfortunately, many people are unaware of these costs and blindly opt for a credit card. It’s crucial to learn about these charges before applying for credit cards. Here are some standard charges you might have to bear as a credit card user.
- Joining Fee
The joining fee is among the most common credit card charges levied by most credit card companies. However, it can vary greatly depending on the type of your card. It’s like the initial cost of owning a card. Different factors can influence the joining fees, including the credit card company, rewards offered, credit limit, etc. Some credit cards don’t charge a joining fee to users.
- Annual Fee
A credit card is a financial instrument. Credit card companies levy an annual fee to maintain the user’s account. However, it can be claimed back in many cases after spending over the set threshold; it also can vary significantly based on the type of credit card and issuer’s policies. It’s best to opt for a low annual fee credit card if you are unsure about reaching the benchmark amount in spending.
- Interest Charges
Since a credit card is a debt instrument, you must pay an interest fee for the borrowed amount. However, unlike loan products, there is a grace period in which you can borrow the amount without bearing any interest expenses. Therefore, any interest charges won’t be if you repay the borrowed amount in full before the due date. However, if you fail to do so, the interest fee will apply to the outstanding balance based on the interest rate decided by the credit card company. Credit cards are known for charging a high-interest rate. Therefore, it’s best to repay the borrowed amount in full timely.
- Foreign Transaction Fee
If you are planning to use your credit card in a foreign land, it’s best to learn about the foreign transaction fees for your cards. There are certain credit cards that have global acceptance. However, the foreign exchange transfer fee is levied in most cases whenever you swipe a card abroad. The foreign transaction fee is charged as a percentage of the transaction amount, usually around 3%. However, it can vary greatly depending on the features of your credit card. There are some credit cards specially designed to save money on foreign transactions. If you travel abroad frequently, opting for such cards to minimize expenses is best.
- Over Limit Fee
All credit cards come with a prespecified credit limit beyond which the user can’t pay for transactions. You can only use the available credit limit to pay for purchases. For example, if your credit card limit is INR 2,00,000, you can’t use it beyond this amount. However, some credit cards have an overdraft facility, allowing users to exceed the credit limit. This facility is not provided to all users. One has to opt for over-the-limit coverage with the card issuer. Some credit cards might come with an overdraft feature, but that’s a special case. In most cases, the over-the-limit fee is 2.5% of the additional amount. So, if you spend 2,20,000, you will have to bear 2.5% of 20,000, i.e., 500.
- Late Payment Fees
Credit card companies charge a late payment fee when the card users fail to repay even the minimum due amount. The minimum due amount is a small percentage of the total outstanding balance plus the late fee, which varies based on the credit card type and late payment amount. Therefore, it is best to avoid the minimum credit card payment cost.