10 Credit Card Charges That You Need to Know About

The credit card charges are the fees, interest, taxes, and other expenses incurred by using or handling a credit card. This includes membership and annual fees, interest, late fees, cash advance fees, foreign currency exchange fees, taxes, among others. Some of the credit card charges are fixed, while others vary depending on how and where you use your credit card. You can learn more about the credit card charges, so you will be able to choose the best credit cards and make wise payment decisions. The credit card charges differ from one credit card to another; hence, it is important to read their fee schedule and terms. The following are 10 typical credit card charges you need to know about.

Key Takeaways

• Credit cards may have more than one fee depending on their use.
• Joining and annual fees differ from one credit card to another.
• Interest charges vary depending on the balance and payments.
• Foreign charges may include a foreign currency conversion fee set by the issuer.
• It is advisable to examine fee schedules to avoid credit card fees.

Types of Credit Card Charges

The following are 10 common credit card charges that cardholders should know about.

1. Joining Fee

The joining fee refers to the one-time payment that could be imposed upon issuance of the credit card. It is set by the issuer of the card and varies from card to card.

While choosing a credit card, it is necessary to find out the joining fee for the specific card and the conditions under which the fee can be waived. In accordance with RBI guidelines, all the applicable charges must be disclosed by the credit card issuers, and the consent of the cardholder must be obtained for all those charges that were not mentioned while issuing the card.

2. Annual Maintenance Fee

An annual maintenance fee or annual/renewal fee is paid periodically for the upkeep of the credit card. It depends upon the specific terms and conditions of the card.

Sometimes, the annual fee for some cards can be waived if certain conditions are fulfilled.

3. Interest Charges

Interest charges will arise if the cardholder maintains an outstanding balance rather than settling the amount payable during the interest-free period. The interest rate, as well as the method of charging the interest, varies from one credit card to another.

According to RBI, the card issuer is supposed to inform the cardholder of the applicable annual percentage rate in different situations, where applicable, as well as the method of computing the finance charge. If the cardholder fails to settle the outstanding amount, there might be no interest-free period, depending on the conditions of the credit card.

4. Late Payment Fee

In cases where the requisite payment has not been made within the stipulated period of time, there may be a late payment fee. 

This amount depends upon the rules set by the bank issuing the card. The Reserve Bank of India mandates that late payment charges should be levied only on the outstanding amount after the payment due date, rather than on the total billed amount. Further, a card issuer cannot treat an account as “past due” or levy penal charges unless the account remains past due for more than three days. 

This is what credit card users must keep in mind.

5. Overlimit Fee

A credit card generally has a specified credit limit. Any transaction in which the limit has been exceeded is termed an overlimit transaction.

A card issuer may extend an overlimit facility beyond the sanctioned credit limit only with the cardholder’s explicit consent. The same is mandated by RBI as well, whereby the cardholder should have the option to activate/deactivate the overlimit facility via transaction control facilities.

6. Cash Advance Charges

Cash advance charges are fees charged for withdrawing cash from your credit card where it is allowed. This fee can be levied by the credit card issuing entity.

According to the RBI, the service charges for withdrawing cash through credit cards depend on individual credit card issuing banks. Hence, there is no fixed cash advance fee prescribed by the RBI for all credit cards.

Cash advances can also earn some interest based on the terms of the credit card.

7. Foreign Transaction Fees

Foreign transaction fees are sometimes referred to as foreign currency or forex markups. These may apply to eligible foreign-currency transactions, depending on the card issuer and the terms of the specific card.

This fee varies depending on the issuer of the credit card and also depending on the specific card being used. You should look at the schedule of fees for your card before you make foreign purchases.

8. Card Replacement Charges

There might be card replacement charges in case of credit card replacement, depending upon the cause of card replacement and the terms of the issuer of the card.

A card may need to be replaced if it is lost or damaged, or if the issuer blocks it and requires a replacement under its applicable procedures. Applicable charges, if any, must be looked into the schedule of charges of the card.

9. Goods & Services Tax (GST)

GST may apply to taxable credit card charges and services. It is important to understand the distinction between GST applied to credit card charges and GST applied to the transaction itself.

The Central Board of Indirect Taxes and Customs (CBIC) states that GST does not apply to the total credit card bill just because a credit card has been used. Instead, GST applies to the fee/commission applicable to the use of the credit card.

10. Reward Points Redemption Fee

There could be a fee charged in connection with the redemption of accumulated reward points from some credit cards. Whether there is such a fee and the exact amount are determined by the reward program of the credit card being considered.

Reward programmes may offer benefits such as reward points, discounts, cashback, and other monetary benefits. 

How to Avoid Credit Card Fees That Are Unnecessary?

Knowing the fee policy of the card before using it could be helpful in reducing the total cost. The following measures may be considered:

• Verify the joining and annual charges before using the card.
• Verify the APR and the way interest is calculated.