Recently, Rajat received a credit card from his com pany's banking partner as a part of the special corporate offer and he was excited about the various benefits of having a credit card for making purchases and as a relief in cash-strapped situations. He was pleased with the services offered to him, starting with the pleasant conversation with the customer service executive and culminating in receiving the card without any processing fee or annual fee.
However, once the monthly statement arrived, he was aghast to see so many hidden charges and various fees as part of the payment due. On calling the bank, he was told that they were associated with card usage and were levied accordingly. With no other option left, Rajat had to pay the entire amount.
Credit cards come with various charges and clauses that might not be explained to a customer during the initial conversations. Hence, it is necessary to delve deeper and find out what they are before signing up for a credit card.
OPEN AND HIDDEN CHARGES
Annual fee waiver: This offer ends after one year and thereafter most companies charge an annual fee of Rs 1,000 to Rs 3,000, depending on the type of card and credit limit.
Revolving interest rates: The interest rate for the outstanding amount not repaid before the due date can range from 1.99 per cent to four per cent per month. Although it seems reasonable, when converted into an annualised percent rate (APR), this would be around 27 per cent to 48 per cent per year.
Fee for exceeding overdraft: This is the fee if the customer exceeds his credit limit. It will be a certain percentage of the overdrawn limit with a minimum and maximum threshold amount.
Late payment: This could be a certain percentage of the outstanding balance and varies with the type of credit card.
Service tax: 12.24 per cent is levied on the total value of a transaction inclusive of fees, interests and other charges on every transaction made using the credit card.
Outstation cheque fee: If a customer opts to make the credit card payment by issuing an outstation cheque, the credit card issuer will charge a certain percentage of the cheque value which is subject to a minimum amount as service fee.
Fee for duplicate statements: Most of the credit card companies charge a fixed sum as a fee for issuing a print out of the duplicate statement of transactions.
Foreign currency transactions: These are charged by converting it into Indian rupee at a rate given by the network infrastructure provider (Master or Visa) and charging a certain percentage of the transaction value.
Cash withdrawal: If money is withdrawn against the credit limit, the customer is charged a fee which could be a certain percentage of the transaction value.
Petrol, rail ticket purchase: A percentage of the transaction amount is charged.
CUT HIDDEN CHARGES
Although some of the above charges cannot be avoided if you are using a credit card, you can well control the burden imposed by these charges by taking the follow measures: Before applying, you need to do adequate research to decide on the credit card that could be to your maximum benefit.
Understand the introductory rates and the charges associated with the use of your credit cards. Read all the terms and conditions given in the booklet, which is issued with the card and those printed on the back of your card.
Be wise while shopping using your credit card. Avoid making unnecessary purchases.
- Never exceed credit limit.
- Pay your interest on time.
- Always pay more than the actual interest amount.
- Read and understand your monthly credit card statements and check if there are any unnecessary charges levied.
- Be aware of the conversion rates, while making transactions in foreign countries.
Credit cards have some advantages and offer lots of goodies like payback points, cash back offers and even special discounts on purchases in partnership with retail companies.
However, if you do not know how to use it properly, then paying up the due amount may go well out of your hands and chances are that you might run into serious problems.
The writer is the CEO of BankBazaar .com
