Credit cards are considered both as a boon and a curse in this millennial era. Having a credit card can prove to be financially helpful. However, if it is not used wisely, it can rake up debt along with additional charges that can affect your financial portfolio. Credit card activities such as repayment of credit form a significant part of one’s credit score and help an individual build his/her CIBIL score. CIBIL score helps in getting bank loans and bigger credit with ease. However, what most people ignore is that credit cards do not come for free. There are hidden charges on your credit card that banks generally do not mention. Experts suggest these little-known charges need to be understood to avoid penalties, excess payment charges, and heavy interest rates later.
Find out some of the different charges that are applicable to your credit card:
- Annual Maintenance Charge: Credit cards come with a joining fee and annual maintenance fee. However, if you are offered a credit card for free, the bank waives off the joining fee and the annual charge for a certain period of time. Nowadays most banks waive off the joining fee only for the first year and introduce it from the second year. Some banks also waive off these charges, on spends up to a threshold specified in advance.
- Interest Charge: Normally banks charge on the due amount an interest rate of 3-4 per cent per month, and generally the annual interest rate ranges from 36 to 48 per cent, which is quite high. Credit cards offer an interest-free period of 45-50 days to pay for all spends. If not paid within that time, the interest rate is charged. After passing of the interest-free period, banks levy an interest charge to be borne by the cardholder if the full payment is not made on time.
- ATM Withdrawal Charges: Though cardholders have the option of withdrawing money from the ATMs using the credit card, such transactions come with additional charges. Around 2.5 per cent of the cash withdrawn is charged as ATM withdrawal fees. Immediate interest on the cash is also added from the date of withdrawal and ranges from 36 to 48 per cent per year. Hence, experts suggest cash from ATMs using a credit card should be opted for only in case of emergencies.
- Late Payment Charges: Bank levy additional late payment charges, in case an individual does not pay the minimum due amount in time. Post the due date when a payment is made, these charges are applicable. These charges, however, are a flat fee and are not linked to the interest charged. With late payment charges, the card holder’s credit score also gets affected, hence try to avoid it at all cost.
- GST: As per the prevailing GST rates, all credit card transactions are subject to GST. Service Tax on credit card-related services was levied at 15 percent before GST was implemented. Now, after GST, the same has been increased by 3 per cent and stands at 18 per cent.
- Overdraft Charges: Overdraft charges are applied when a credit card holder exceeds their monthly credit limit, applicable on the credit card.