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Credit cards come with a whole host of fees and charges. These include joining fee, annual fee, cash advance fee, overlimit charges, late payment charges, reward redemption fee, foreign currency mark-up fee and transaction charges. Here is a primer on important credit card fees and charges.
Joining fee
This is a fee that is levied when the credit card is issued to the customer for the first time. This is a one-time fee that is charged when you activate the card after your application is approved. A joining fee covers the cost of issuing a card and is typically paid when you first receive it or is charged in your first billing cycle. Card issuing banks waive this fee for preferred customers and for those who meet the specified spending requirements. The fee varies with each issuer and is usually higher for premium credit cards that come with high spending limits. The joining fee can be as low as ₹250 and can go up to ₹50000.
Annual fee
The annual fee is recurring in nature and is charged to your credit card account every year. An annual fee enables the bank to cover the costs associated with maintaining your card including those incurred for processing transactions, providing rewards and other services. Like in the case of joining fee, issuers offer waivers based on spending and other criteria. The annual fee is usually similar to the joining fee in each card and also ranges from ₹250 to ₹50000.
Transaction charges
This is the most common fee that is charged by issuers. Transaction charges are levied on certain spending categories such as utility payments, fuel, rent and for online/mobile-enabled payments. Card issuers typically charge 1% of the transaction amount as charges, which is capped. This enables them to cover the cost of processing the transaction.
Cash advance fee and interest on cash withdrawals
This is charged when you use your credit card for withdrawing cash. Except for a handful of credit cards, all other cards levy the fee and charge interest for cash withdrawals. Since the interest starts accruing right from the day you withdraw the money, using the credit card for such purposes is not advisable. The interest on cash withdrawals is the same as the interest charged on unpaid balance in your credit card. The cash advance fee is usually 2.5%-3% of the transaction amount and is capped. The fee is levied every time you use the credit card to withdraw money at the ATM.
Reward redemption fee
Credit cards are all about reward points. Rewards carry a huge value potential and are one of the main driving factors in credit card spending. But issuers levy a fee whenever you redeem your reward points. Though it varies with each issuer, a fee of ₹99 per redemption request is usually charged.
Late payment charges
Late payment charges are imposed by the card issuer if the minimum amount on the credit card bill is not paid before the due date. Most issuers provide a grace period of three days before levying late payment charges. These charges vary with each issuer and are imposed as a percentage of the outstanding balance. Missing a payment or delaying it beyond the grace period will have a negative impact on your credit score.
Over-limit fee
Credit cards come with a credit limit, which is the maximum amount you can borrow. If your spending exceeds this limit, issuers will charge an over-limit fee. For instance, if your credit limit is ₹2 lakh and you spend ₹2.25 lakh in a billing cycle, your over-limit is ₹25000. Card issuers will charge you for overspending which is either a fixed amount or a percentage (2%-3%) of the overspent amount. Lenders consider a credit utilisation ratio (CUR) of more than 30% as a red flag. A high CUR and overspending will adversely affect your credit score. In the above case, restricting your spending to ₹60,000 per billing cycle (CUR of 30%) will be considered a good credit behaviour.
Foreign currency mark-up fee
This applies when you use your credit card for international transactions. It typically ranges from 1%-3.5% of the transaction amount. This fee is not levied by several premium credit cards and travel-focussed credit cards.
Interest on outstanding balances
If you do not pay your credit card bill in full, the unpaid balance attracts an interest rate, which is usually quite high. The interest rate varies with each issuer and works out to 15%-55% on an annualised basis. But you should avoid this at all costs. If you do not have the money to pay, you can even raise a personal loan that carries much lower interest rates to settle the bill. Paying interest on unpaid credit card balance will have a negative effect on your credit score.
While the above listed fee and charges are a standard feature in almost all credit cards, issuers also charge customers for several other services that include lounge access and concierge.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
