Whether you are about to apply for a new credit card or you already own a credit card, it is important to know the hidden fees and charges that are associated with it.
These hidden fees and charges can burn a big hole in your pocket if you are not aware of them as they are not clearly disclosed by banks at the time of issuing the credit card.
No worries…
After reading this article, you will know 11 different types of fees & charges and how to AVOID them so that you can save money.
Credit Card Fees & Charges in India
#1. Foreign Transaction Fee
A foreign transaction fee is levied when you use your credit card outside India. This fee is charged by the banks to facilitate the conversion of your foreign currency transaction into INR.
The majority of credit cards levy a 3.5% foreign transaction fee which is quite high and can burn a big hole into your pockets.
How to Avoid Foreign Transaction Fee
- Use credit cards like Yes Bank Preferred Credit Card (1.75%) and HDFC Regalia Credit Card (2.0%) that charge less than 3.5% as the foreign transaction fee.
- Alternatively, you can make use of cash foreign exchange. Look at the exchange charge for US Dollars. The exchange charge is 0.015504 per INR 1 that is only 1.55% ( 0.015504*100), which is lower than the 3.5% charge that most of the credit cards levy.
#2. Payment Dishonor Fee
A payment dishonor fee is charged by the bank when the payment on the credit card has been dishonored. Payment can be dishonored for various reasons like check bounce, auto payment from your bank account being blocked due to insufficient funds.
In such cases, the bank charges a fee of 2% of the amount dishonored subject to the minimum amount of payment dishonored. The minimum charges vary from bank to bank. For example, HDFC charges a minimum fee of INR 450 and SBI charges a minimum fee of INR 350.
How to Avoid Payment Dishonour Fee
- Every time you make a payment on your credit card, check and make sure that you have sufficient funds in your bank account.
#3. Cash Payment Fee
Cash payment fee or cash transaction fee is the fee charged on the cash payment of your credit card bills. The banks charge a fixed fee of INR 100 when you pay your credit card bills in cash at the bank counter.
Also, some banks charge the same fee if you make a check payment for credit cards.
How to Avoid Cash Payment Fee
- Net banking is the most convenient way to pay your credit card bills as you won’t incur any fees.
#4. Balance Transfer Fee
Banks allow the balance transfer facility under which you can transfer your credit outstanding with the current credit card to a new card. This clears all the debt with the previous card.
However, you can transfer the balance only to other banks. For example, if you have a current credit card outstanding with the HDFC bank, you can transfer the credit to any other bank ( that allows this facility) but not to the HDFC’s new credit card.
The other bank will charges a balance transfer fee for facilitating and processing the transfer. Usually, the transfer fee is about 2% (may vary a bit with different banks).
How to Avoid Balance Transfer Fee
- Pay your credit card outstanding amount with your current card.
This option is beneficial when you can’t pay your credit card bills which may result in high finance charges.
#5. Railway Ticket Booking Fee
In case of railway ticket bookings, the transaction charges have to be born by the credit cardholder. Whether you book your ticket online or purchase your ticket at the counter, you have to pay the transaction charges.
When you make a payment at the counter, you have to pay a fee of INR 30 + 2.5% of the transaction amount. In case of online booking at irctc.co.in, a fee of 1.8% is charged.
How to Avoid Railway Ticket Purchase Fee
- If you can head to the nearest railway ticket counter, then making a cash payment is the simplest and the best way to avoid the railway ticket purchase fee.
- Alternatively, you can make use of the SBI IRCTC credit card. This IRCTC credit card waives the railway transaction fee along with offering other benefits on ticket booking at irctc.co.in
- You can also use eWallets like PayTm to pay less charges.
- The best way is to use UPI Apps (Google Pay or BHIM) to avoid transaction charges while train ticket bookings.
#6. Cash Advance Fee
Do you know that you can withdraw cash from ATMs through your credit card? But, this benefit comes a steep cost. Every time, you withdraw money through your card, you have to pay a transaction fee of 2.5% with a minimum fee of INR 300.
The charges don’t end there. Apart from the transaction fee you have to pay interest on the cash withdrawal right from the first day until the date of payment. Unfortunately, there is no grace period for the cash advance.
How to Avoid Cash Advance Fee on credit cards
- The best way to avoid the cash advance fee is not to use a credit card to withdraw money from ATM. Make ATM withdrawals only through your debit card.
- If you need to make a cash payment and you don’t have a debit/ATM card with you, see if the vendor accepts payment wallets like Paytm. That way, you can upload the money into Paytm through your credit card and make the payment.
#7. Annual Fee and Renewal Fee
The annual fee is the first fee charged by the banks upon issuing credit cards. In the first year, it is charged along with the joining fee and from the second year onwards you have to pay it in the form of a renewal fee.
Annual fees can vary depending upon the type of credit card like Silver card, Gold card, Platinum card, or Titanium Card. Better the features, the more the annual fee charged by the banks.
The annual fee or renewal fee can be avoided only at the time of the selection of the credit card.
Ways to avoid annual and renewal fee
- Every bank offers some basic credit cards that attract zero annual fees. You can opt for these cards. However, these cards offer only basic benefits.
- Check the annual fee waiver clause. Many premium credit cards like HDFC Regalia offer annual fee waivers benefit upon crossing a certain threshold in annual spending. Choose a credit card after comparing your expected annual spend with the fee waiver clause limit.
- If you have to select a credit card that comes with an annual fee (and without a waiver clause), just ask the customer care to waive off the annual fee. If you are a valuable customer to the bank, they would certainly do so. Many times this trick does work.
- Many banks offer different types of savings accounts for their customers. Since most of us apply for a credit card at the time of opening a savings bank account, opt for a savings account that offers a credit card with zero annual and renewal fees.
#8. Over the Limit Charges
An over- the limit fee is charged when the total credit card bill exceeds the credit limit. For example, you have a credit limit of INR 80,000 but your total outstanding bill has reached INR 100,000. You then have to pay the over-limit charges.
Over the limit fee is charged @ 2.5% subject to a minimum of INR 500.
How to Avoid Over Limit Fee
- In case you are frequently exceeding your credit limit, you should either request for a credit limit increase or apply for a second credit card. I have written a post on tips to increase the credit limit that you should definitely check out if you are looking for a credit limit increase.
#9. Interest Rate (finance charges)
The interest rate is a penalty imposed by the bank for not paying the credit bill on time. This is charged on the outstanding amount of your credit card.
In general, banks charge a huge interest rate varying between 36% and 48% per annum. Paying finance charges on your credit bill could be the worst thing possible as it will suck out all the benefits of the credit card. In fact, it would cost you more than availing a personal loan.
How to Avoid the Finance Charges
- The only way to avoid finance charges is to pay the credit bill on time. If you want to improve your CIBIL score, pay the outstanding amount at least 5 days before the due date. You can check out my post a complete guide to check your CIBIL score to know more details on the same.
#10. Late Payment Fee
Late payment fee differs from the interest rate fee in the scope that late payment fee is charged when the minimum due amount is not paid by the payment due date. In general, the minimum due amount is 5% of the credit card bill and the late payment fee that is charged is above and over the finance charges.
You can see the late payment charges of HDFC Bank credit card as below.
How to Avoid Late Payment Fee
- Pay the minimum due amount before the due date. But do remember that even after paying the minimum due amount, you have to bear the interest charges on the remaining amount.
#11. Fuel Surcharge
Every time you make a fuel purchase through your credit card, you have to pay a fuel surcharge @ 1% subject to a minimum of INR 10 along with service tax & other taxes.
Although many credit cards offer a fuel surcharge waiver, the way it works is that you have to pay the fuel surcharge first and only then the surcharge amount is credited to your account(minus the paid taxes).
How to Avoid Fuel Surcharge
- Go for cash when paying for fuel. Use a credit card for fuel only when the card offers additional benefits beyond the fuel surcharge waiver.
The additional tax burden on fees (GST)
On the above-mentioned charges & fees, you now have to pay an additional tax in the form of GST. This puts additional pressure on your pocket.
From 1 July 2017 under GST law, you have to pay GST @ 18% (formerly it was 14%) over fees & charges. For example, you have to pay a fee of INR 2000 on your credit card, then
GST – INR 360 (18%)
Total Fees – 2360 (2000+360)
How to Avoid Applicable Taxes
- The only way to avoid taxes is to avoid fees. Neither do you have to pay any fees nor any tax on that.
Conclusion
The more wisely you use your credit card, the more you get the benefits. I hope you found this article to be helpful and informative. Let me know what you think of it in the comments below.