Isn’t a credit card a fantastic payment tool? After all, you can use it to purchase online or when travelling. You can also enjoy the unlimited benefits that come with it. Plus, it serves as a great backup during financial emergencies. However, beneath all these incredible features of a credit card, there lie hidden credit card charges. Yes, you read that right!
People use credit cards to take advantage of their features and perks, but when credit card hidden charges surface, they find themselves in a debt cycle, which makes it challenging and exhausting to own a credit card.
In this article, we will explore the hidden credit card charges that you must be aware of. Also, we will see how you can avoid them.
#1. Annual Credit Card Charges
Annual fees are like other credit card membership charges. It is a lump-sum amount you have to pay to enjoy the credit card benefits every year. Some cards offer higher reward rates, warranty protection, or airport lounge access. These bonuses can sometimes be worth more than the annual credit card fees.
While having a card with a luxury airport lounge facility may be appealing, you need to ask yourself some questions. Do you need it? Are the incentives or other perks worth the annual charges? If you fly once a year, buying a day pass to a luxury airport lounge may be cheaper than purchasing a card that gives you free access to them.
How to avoid
Choosing a card without an annual fee is the easiest approach to ensure you won’t have to pay one.
There are several choices, some of which even provide benefits like rental car insurance coverage that you may anticipate finding on a card with annual credit card charges.
#2. Cash Advance Charges
The cash limit is the maximum amount you can withdraw from an ATM. It is a portion of your overall credit limit.
Although it may sound attractive, credit card issuers levy very high charges for cash withdrawals and advances (around 2.5% of the amount withdrawn).
Furthermore, you need to pay interest on cash withdrawals because interest starts to accrue the day the money is taken out.
How to avoid
The expense of obtaining cash with your credit card is relatively high due to cash advance charges.
Therefore, consider other alternative ways to get money to avoid these credit card charges, such as lending from family or friends or taking out a personal loan, whichever seems convenient to you.
#3. Interest Charges
If you don’t pay the outstanding amount by the due date set by the lending institution each month, you will be charged a specific monthly interest on all purchases made with your card.
Although this may appear reasonable to you, what you may not know is that the monthly interest rate is annualised to arrive at an annualised percentage rate (APR) that can be as high as 36-38%.
How to avoid
To avoid interest charges, pay the amount all at once. If it is not possible, you can pay in a smaller sum but not less than the minimum payment. Any outstanding amount from your statement balance will accrue interest, just like any new purchases made with the card, but the less outstanding balance you have, the less interest you’ll pay.
#4. Over Limit Fees
Over-limit fees on credit cards refer to the fee your credit card issuer levies when your credit card balance exceeds the credit limit. It is the penalty for exceeding the maximum limit on your credit card.
Credit cards simply let you use your card even if you exceed your spending limits in exchange for a fee,
which is an overdraft charge. However, not all credit cards include overdraft fees, so if yours does, find out what they are before you go over your limit.
How to avoid
If your card has an over-limit fee, try not to purchase if it takes you past your credit limit. Additionally, to stay within your credit limit, ask your issuer to raise your limits if you’ve been consistently paying payments in full and on schedule. It will help you dodge these hidden charges on credit cards.
#5. Foreign Transaction Charge
Another hidden credit card charge you must consider, especially if you frequently travel overseas, is the foreign mark-up fee. When you use your card to make an international purchase, the issuer levies this charge. This charge is generally a percentage of the transaction’s value.
Most credit cards in India levy a 3.5% charge on a foreign transaction amount. Remember that this charge is applied to the amount converted to Rupees. For example, suppose you made a transaction in dollars. First, the amount will be converted into Rupees, and then the interest will be charged.
How to avoid
Since most credit card issuers charge 3.5% as a foreign mark-up fee, you can shop around and see if you can get a better deal.
#6. Late Payment Fees
Another credit card charge you must know about is the late payment fee. A late payment fee is levied on the outstanding amount if you cannot pay the minimum amount by the due date. It is charged in the subsequent billing cycle.
How to avoid
If you want to avoid late payment fees, pay your credit card bills on time. Alternatively, you can automate credit card payments, but you will have to ensure adequate funds are in your account to clear the bills.
#7. GST Credit Card Charges
You should be aware that any purchases made with a credit card are subject to the current GST rates for taxation.
Additionally, interest payments, yearly maintenance costs, and EMI processing fees are all taxed under GST credit card charges. For every credit card transaction, the current GST rate is 18%.
Since it is implied by the government and not by lending institutions, you cannot avoid this hidden credit card fee.
The Bottom Line
Before applying for a credit card, gathering relevant information and inquiring with the issuer about hidden charges is essential. Plus, while getting a credit card, do not be swayed solely by enticing exclusive offers and rewards.
Not sure where to get a credit card? Turn to Tata Capital. With our credit cards, you will enjoy all the exclusive benefits at more affordable fees and costs.
To apply for our credit card, visit our website today.
06 November 2024
6 mins read
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