To decide whether to apply for a specific credit card, you should know the benefits and the costs involved. Usually, the features and benefits are highlighted in bold in media campaigns. However, the costs are not highlighted and have to be dug out from the Most Important Terms and Conditions (MITC) document.
Let us understand some of the credit card fees and charges you should be aware of. It will help you compare them with the benefits and decide whether to apply for the card.
Joining and annual renewal fee
Most cards have a joining fee, although some are issued on a First Year Free (FYF) or Life Time Free (LTF) basis. Some cards with a joining fee may be issued to some customers on an LTF basis based on their relationship with the bank and other factors.
Some cards offer welcome benefits for the joining fee paid. These can include reward points, gift vouchers of specific brands, memberships of various programs, etc. Some banks offer to reverse the joining fee on spending a specified amount within a specified number of days.
Compare the joining fee of the card with the welcome benefits and other features and benefits of the card to evaluate whether it is worth the joining fee.
Most cards have an annual renewal fee that is charged on completion of the calendar year from the date of card issue. Some cards offer certain benefits on payment of the annual renewal fee in the form of reward points, gift vouchers, membership of various programs, etc.
Some cards waive the renewal fee on spending a specified amount in the previous year. For example, the American Express Membership Rewards Credit Card (MRCC) has a renewal fee of Rs. 4,500 + taxes.
However, the renewal fee is waived on spending Rs. 1,50,000 and above in the previous year. Similarly, the American Express Platinum Travel Credit Card has a renewal fee of Rs. 5,000 + taxes. However, there is no waiver criteria.
Late payment fee
The late payment fee is applicable if the minimum amount due is not paid by the payment due date. Some banks charge the late payment fee amount based on the outstanding balance slab-wise. The outstanding balance is calculated as the total amount due minus the amount paid by the due date.
For example, ICICI Bank charges the late payment fee as follows:
|
Outstanding amount |
Late payment fee |
|
Less than Rs. 100 |
None |
|
Between Rs. 100 and Rs. 500 |
Rs. 100 |
|
Between Rs. 501 and Rs. 5,000 |
Rs. 500 |
|
Between Rs. 5,001 and Rs. 10,000 |
Rs. 750 |
|
Between Rs. 10,001 and Rs. 25,000 |
Rs. 900 |
|
Between Rs. 25,001 and Rs. 50,000 |
Rs. 1,000 |
|
More than Rs. 50,000 |
Rs. 1,200 |
Finance charges or interest charges
The finance charges are applicable if the cardholder doesn’t pay the entire outstanding balance in full. Most banks levy finance charges usually in the 1.99 to 3.75% per month (23.88 to 45% per annum) range. However, it differs from bank to bank. Some banks have a dynamic rate based on the borrower’s creditworthiness, payment track record, and other factors.
For example, IDFC FIRST Bank has finance charges in the range of 0.75 to 3.65% per month (9 to 43.8% per annum). So, to start with, the rate applicable in your case may be 3.65% per month or 43.8% per annum. However, depending on your performance track record and other criteria, over a period of time, in stages, the bank may bring down the rate to 0.75% per month or 9.00% per annum.
Cash advance fee
The cash advance fee is applicable when you withdraw cash from the ATM using your credit card. It is applied as a specified percentage of the amount withdrawn or a flat amount, whichever is higher. For example, HDFC Bank charges a cash advance fee of 2.5% (excluding Infinia and Infinia Metal Edition) of the withdrawal amount or Rs. 500, whichever is higher.
The finance charges are applicable on cash advance/withdrawal also. For cash advances, the finance charges are applicable from the date of the transaction till the amount is paid back.
It is recommended that you don’t withdraw cash using credit cards, unless there is an emergency and you have run out of other options. Cash withdrawals are subject to the cash limit on the credit card that you hold.
Reward redemption fee
Banks allow you to redeem reward points against merchandise, gift vouchers, statement credit, booking flights and hotel rooms, transfer to frequent flyer programs, hotel loyalty programs, etc. The bank may charge a reward redemption fee while redeeming reward points for some of these options.
For example, SBI Cards charges a reward redemption fee of Rs. 99 on physical product, statement fee credit, and on vouchers that are sent physically.
Cash repayment fee
The credit card outstanding can be paid through various modes like net banking, third-party apps, etc. You also have the option to pay the credit card amount due by depositing cash at the bank branch. Banks charge a cash repayment fee for cash deposits.
For example, Standard Chartered Bank charges a cash repayment fee of Rs. 299 for making payment of credit card bills by depositing cash at any Standard Chartered Bank branch. However, IDFC FIRST Bank doesn’t charge a fee on cash payment at branches.
Card replacement fee
At times, it may happen that your card is lost, stolen or damaged. In such cases, you will need a card replacement. Banks charge a card replacement fee for such requests. For example, ICICI Bank charges a card replacement fee of Rs. 200 for all cards, with the exception of the Emeralde Private Metal Credit Card (replacement fee of Rs. 3,500).
Surcharge on certain payments
Banks levy a surcharge on certain payments like fuel, rent, railway tickets, utility bill payments, education fees, etc. The fuel surcharge of 1% (minimum Rs. 10) is quite common. However, many banks provide a waiver on this if the transaction amount is up to a specified amount. Some banks have a maximum limit on the fuel surcharge waiver per statement cycle.
If your monthly expense on fuel transactions is high, it is recommended that you go for a co-branded fuel card. It will give you a waiver on fuel surcharge along with a decent reward rate.
In the last few months, most banks have started charging a fee for rent payments made through credit cards. For example, ICICI Bank charges a 1% fee on the transaction amount. Some banks cap the amount charged per transaction. For example, HDFC Bank charges a 1% fee on the transaction amount, with a capping of Rs. 3,000 per transaction.
Most banks levy a convenience fee on the booking of railway tickets. For example, Standard Chartered Bank charges 2.5% (minimum Rs. 25) of the transaction amount for railway transactions.
Recently, some banks have introduced a fee on credit card usage for paying education fees. For example, HDFC Bank charges a 1% fee on education transactions done through third-party apps like CRED, PhonePe, etc. The fee is capped at Rs. 3,000 per transaction. HDFC Bank doesn’t charge the fee for education transactions done directly through college/school websites or POS machines at their education premises.
Recently, some banks have introduced a fee on utility bill payments through credit cards. For example, Yes Bank charges 1% of the transaction amount on utility bill payment transactions of above Rs. 15,000 in a month.
Payment return charges
If your bill payment through cheque, auto-pay, etc., is returned due to insufficient funds or any other reason, the bank levies a payment return charge. For example, Yes Bank levies a payment return charge of Rs. 450 per instance of cheque or auto-pay return.
Overlimit fee
When your credit card usage exceeds the credit limit in a billing cycle, it is known as overlimit. An overlimit fee is levied in such cases. The overlimit fee is usually charged as a specified percentage of the overlimit amount or a fixed fee, whichever is higher.
For example, SBI Card charges an overlimit fee of 2.5% of the overlimit amount or Rs. 600, whichever is higher.
Apart from the ten credit card charges discussed above, banks levy other charges like foreign currency transaction charge, balance transfer fee, EMI conversion fee, etc.
Credit cards can be a boon or a bane
Depending on how you use credit cards, they can be a boon or a bane. If you use them regularly and repay the entire bill every month, they can be a boon. They can give you benefits like instant discounts, cashbacks, reward points, and other benefits.
However, if you are unable to pay the entire bill, the finance charges, late payment fees, and other charges can land you in a debt trap. So, you should use credit cards judiciously and make sure to repay the entire outstanding amount to enjoy their benefits.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
