Credit card usage in India has grown leaps and bounds in the last decade in India. So much so that it is now more of a financial staple than cash. With stiff competition in the credit card market, card providers, predominantly banks offer an array of cards with features customised to suit the spending requirements of a diverse customer base.
Applying for a credit card has never been easier either with processes going online, both by banks and independent financial websites. In choosing a credit card, most applicants compare cards based on two broad parameters — what the card offers and what it costs. While most applicants are suitably thorough in their scrutiny of what a credit card offers, most overlook the costs incurred or payable when using a credit card. Specific information pertaining to the cost of a card is usually listed out in one of the most ignored aspects of a credit card agreement — the terms and conditions.
Credit card charges
Credit card interest rates are commonly, and rightly, understood by applicants to apply on overdue amounts. However, most people are unaware of how interest is calculated.
A monthly interest rate of 3.3 per cent per month sounds reasonable enough. But this translates to an APR of 40 per cent i.e. per year and a daily interest rate of about 0.12 per cent. While this appears harmless in itself, what most cardholders don’t realise is that interest is charged, in many cases, on compounding basis, either daily, monthly or annually. This means the effective interest rate is much higher than the flat rate most assume it to be.
Interest rates are not only applicable to overdue amounts but to other transactions as well. For example, cash withdrawals and revolving credit.
Many credit card providers offer teaser rates such as low interest rates in order to increase sales. Applicants mistake this to be the applicable APR on a credit card. However, these rates are time-bound offers. Once the offer period lapses, interest is charged at the APR stated in the T&C of the card.
If a credit card bill is not paid on time a late fee is levied. Late fees vary based on the total amount due. Higher the amount due, higher the fee charged. This is payable in addition to the total amount due and any interest that accrues on outstanding amount.
Some cards feature a joining fee payable upfront in order to avail the card. It is usually levied on cards of a superior variant.
As with teaser rates, many banks attempt to lure customers with fee waivers, most commonly on a credit card's annual fee. Many applicants choose a card based on a zero annual fee basis only to find the waiver applies to a specific time-period. Besides annual fee, banks may charge a fee to renew a card every year.
If the credit or cash limits have been breached on a credit card, the bank may charge a penalty at a certain percentage of the excess amount.
This is levied on cash withdrawals made using a credit card. A charge at a fixed percentage on the amount withdrawn, subject to a minimum fee is levied. For example, 2.5% of the transaction amount or Rs 300, whichever is higher. This is in addition to applicable interest charges.
Cash processing fee / outstation cheque charges:
Paying credit card bills in cash can attract a nominal flat fee. For example, Rs 100 for every payment made in cash. Similarly, payments made via outstation cheques also attract a flat fee which can vary on the cheque value.
Forex Mark-Up/ Conversion Rates:
A mark-up is levied on payments made abroad/in a foreign currency at a percentage of the transaction amount. For example, 3.5 per cent on a spend of $1,000. The mark-up applies to every such transaction. Conversion rates used are as indicated by the credit card firm, which may be higher than the rate as on the date of the transaction.
Card replacement or Duplicate statement charges:
Both these transactions are usually only done on payment of a nominal fee of about Rs 100 or Rs 300 for the same.
Some spends attract an additional charge if made using a credit card instead of cash. E.g. payments made at petrol stations attract an ex-tra charge if made using a credit card.
Service tax / Swacch Bharat Cess:
Many people assume the credit card bill will reflect only the amount spent on the card. However, service tax and Swacch Bharat Cess is also applicable and payable. Service tax and SB Cess not only applies to the amount spent but also to any other interest, fees and other charges.