A credit card allows you to buy anything with the option of paying later. It also appears to be very intriguing for the purchase rewards and for building credit history. While a bank may claim that credit cards are free, users should be aware that there are a few ‘hidden charges’ associated with the cards. Most of you are only concerned with the card’s annual fee, but there are several other credit card charges to be aware of.
Annual Maintenance Charge
Commonly referred to as an ‘annual fee’, this is not a hidden charge. The annual fee is charged once a year and varies depending on the card. Banks will sometimes offer free credit cards, which means there will be no joining or annual fees on the card for a set period of time or lifetime.
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Cash Advance Fee
As part of the total credit limit on the credit card, there is also a ‘cash limit,’ which limits your ability to withdraw cash from ATMs using the credit card. This cash withdrawal or cash advance transaction is expensive, costing up to 2.5% of the amount withdrawn. Cash advances are subject to interest from the day the transaction is completed, and the interest-free period does not apply to credit card cash withdrawals.
Exceeding the spending limit may or may not be permitted depending upon the type of credit card you are using. Banks charge a hefty ‘over-limit fee’ for such ‘exceeded limit’ transactions. Most banks charge a minimum of ₹500, but it also depends on the amount by which you have exceeded your credit limit.
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Late Payment Charges
If you are unable to pay the entire outstanding balance on your credit card, banks allow you to pay a minimum amount. If you are unable to pay even the minimum amount, the bank will charge you a ‘late payment fee’. The fee is assessed based on your statement balance.
Foreign Currency Mark-up Fee
Although credit card companies advertise that their cards are globally accepted, they never disclose that there will be additional fees for foreign transactions, known as a foreign currency mark-up fee. The fee varies by card and is usually charged as a percentage of the transaction amount.
All credit card transactions are subject to the Goods and Services Tax, or GST. The current GST rate for banking and financial services is 18%.