Understanding Credit Card Fees and Hidden Charges: Everything You Need to Know to Avoid Financial Pitfalls

Credit cards are a part of modern life as they provide convenience and flexibility in managing your funds. They still charge some fees, which can greatly impact your budget if they are not paid on time. Annual fees and foreign transaction fees soon add up, reducing the value of your points and entitlements. Once you understand how it works, you’ll be able to make smarter financial decisions and get more value out of your credit card.

What are credit cards?

A credit card is a financial instrument issued by a bank or other financial institution. The card holder can borrow according to the limit set for the account holder. When the cardholder makes purchases using the card, payment occurs. A report of all these expenses appears monthly along with the due date. The cardholder can pay the fees in full or in a minimum amount.

Types of credit card fees

Credit card fees vary for each type of issuer and also vary depending on the features offered. Most common fees:

1. Membership and annual service fees: Many credit cards require an application fee after your application is approved. There is also an annual maintenance fee. Such fees may change over time depending on the type of features and rewards the card accumulates. Cards that retain most features have higher fees.

2. Interest payments: Failure to pay the full amount of your credit card statement by the due date will result in interest being charged on the remaining balance. Users must pay off the entire outstanding balance each month to avoid penalties.

3. Late payment fee: If the minimum amount is not remitted on time, a late fee will be charged. On-time payments eliminate the need for users to pay additional fees and help improve a consumer’s credit score.

4. Fees for exceeding the limit: Every credit card has a spending limit. If you make purchases exceeding this amount, the provider may charge an overage fee. Again, this fee varies depending on the policies of your bank or financial institution.

5. Cash withdrawal fee: Many credit cards also allow you to receive cash advances up to an agreed upon limit. This typically incurs a fee of perhaps around 2.5% of the amount charged and interest accrues from the date of the transaction.

6. Commission for international transactions: You’ll likely pay a foreign transaction fee every time you make an international purchase online or while abroad. This fee represents the cost of exchanging the money you spend in your country into your local currency.

7. Card replacement cost: Your credit card may be lost, stolen or even destroyed, but you can always request a new one from the bank that issued the card. This is a regular service and regular prices apply.

8. Goods and Services Tax: GST is also levied on credit cards, including annual fee, interest payment and EMI processing fee. Sometimes there is an additional charge for fuel or train tickets.

9. Commission for repayment of reward: One of the main benefits of credit cards is earning rewards like cashback, discounts or points that can be redeemed for gift cards or other goodies. Some issuers charge a small processing fee when you redeem these points.

Conclusion

If you can figure out what fees will be charged for these card transactions, it will help you make the right choice and take advantage of all the benefits. You can save and avoid losses from annual fees, late fees and other international transaction fees. Credit cards provide great convenience and benefit when used carefully. With proper management and awareness of hidden costs, you can reap the benefits of credit cards while maintaining your financial health. Failing to meet your credit card payments will result in your Credit Information Bureau (India) Limited (Cibil) rating being lowered, which means there is a higher chance of your loan application being rejected in the future. Even if the loan is approved, you will be charged higher interest rates. Plus, your credit limits will be lower.