Do Banks Charge For Credit Cards?

If you have just received your premier signature card from your bank and are absolutely thrilled, just hold for a moment. Your immediate urge may be is to go out on a shopping spree but did you know the costs you will be paying. Most cards announce fabulous offers and discounts on the usage of cards. The more you use your card, the more points you will earn and therefore the more you will stand to benefit. All that is fine, but you first need to know what the banks charge for your credit card. Surprisingly there’s also credit card swipe charges. Do you really know the effective cost of your card?

Types of Credit Card Charges

Let’s look at the different types of charges associated with credit card usage:

1. Annual Maintenance Fee Gets Debited To Your Card Each Year

Many credit cards announce a waiver of AMC for the first year. That means you will be charged the AMC from the second year onwards. The AMC ranges from Rs.700 per year to even Rs.5,000 per year in case of up-market credit cards. This type of credit card annual charges will be added to your bill each year.

2. Cash Withdrawal Charges On A Credit Card

Credit cards will also allow you to withdraw cash against your limit. That comes at an additional cost. The credit card cash withdrawal charge ranges from 2.5% to 10% depending on the amount withdrawn. This is apart from the interest that will be charged at 36% on the amount withdrawn. You are better off using your debit card to take out cash, else bear the headache of credit card ATM withdrawal charges.

3. Credit Card Late Payment Charges

When your card is issued, they will define your due date in each monthly bill. The bank will expect the credit to be received by the due date. Even if your payment is delayed by one day, there is an additional levy that is charged. Similarly, if you are approaching your credit limit and you exceed the limit even by a small margin, there is an excess limit charge that is imposed on you. And if you skip a payment, there is an additional cost.

4. Interest On Your Credit Card

By now you surely know that your credit card is just a convenient loan. But it is a loan that comes at a huge cost. If you pay your outstanding amount each month in full, then it is fine. But that is not how most people use their credit cards. Either people pay only part of their outstanding or prefer the 5% revolving credit facility. In either case, you are charged an interest at 2.5% to 3% per month on your credit card. That is, nearly 40% annual interest; too steep by any standards. Effectively, if you pay just 5% of your outstanding amount on the card, then 3% of the outstanding will go as interest. That is why your credit card outstanding never appears to reduce.

5. Charges On Certain Special Transactions

Most cardholders are not aware of this, but certain transactions attract a special charge, apart from the interest. Normally, when you buy gold on your credit card or you use the card for overseas transactions, there is an additional levy. International credit card charges can often burn a hole in your wallet. Many merchants also charge you 2% extra if you pay by credit card. You must factor in all these costs, especially credit card international transaction charges.

6. Administrative Charges On The Card

Then, there are other administrative charges for special services rendered. For example, if you lose your card and ask for a duplicate card, there is a cost to you. Similarly, if you call for a duplicate credit card statement then you will be charged for that too. Above all, be very careful that the cheque issued by you is not dishonored by the bank. In that case, not only will your bank impose a dishonor charge on your bank account, but your credit card company will also impose a penalty that will be a multiple of the dishonor charge.

7. GST And Surcharge On All These Charges

That is the statutory catch for you. When you get billed a host of charges, that is bad enough. On top of that, you will also pay the GST at 18% and the cess on all these transactions. That also adds up to your overall cost.

Conclusion

Credit card charges play a critical role in modern financial transactions, offering convenience and flexibility to consumers worldwide. Being aware and understanding the terms, managing spending responsibly, and promptly addressing any differences are vital for preserving financial health. 

By staying informed, practicing caution, and leveraging consumer protections, when necessary, individuals can effectively steer the intricacies of credit card charges and maximize the benefits while lessening risks. To avoid unnecessary charges, maintaining overdraft fees, balance transfer fees, over-the-limit fees, returned payment fees and credit card replacement can upset one’s finances. By practicing responsible financial ways, consumers can avoid all this by using a credit card responsibly.

FAQs

Ans. There are no hidden charges. The card issuers are clear about what applies to a credit card.

Ans. Credit card issuers charge an annual fee for the privilege of using the payment card. The amount depends on various factors like features, benefits, card limit, etc.

Ans. Typical credit card fees would include an annual fee for card ownership, a balance transfer fee for transferring another debt to your card, and foreign transaction fees for making an international purchase.

Ans. An annual fee is a cost you pay credit card issuers for consuming certain cards. It's normally payable once a year, but some issuers ask for monthly instalments.