The first time when I searched for credit cards, I found a long list of fee & charges mentioned by the banks. I thought, how can a person get benefit from the credit cards in the presence of such high credit card charges.
Then I searched for more depth about the credit cards and found that the majority of the fee & charges are condition based which can be avoided by careful usage.
Here is the rundown of most common credit card charges & Fee and tips how you can avoid them.
#1. Foreign Transaction Fee
A foreign transaction fee has to pay when you use your credit card outside the India. This fee is charged by the banks to convert foreign currency transaction into INR.
On majority of credit cards, the foreign transaction fee is charged @ 3.5%
How to Avoid Foreign Transaction Fee
- If you want to use credit cards for foreign transactions, then there are some credit cards like Yes Bank Preferred Credit Card (1.75%), HDFC Regalia Credit Card (2.0%) that charged less than 3.5% as the foreign transaction fee.
- You can get benefit from the cash foreign exchange. Look at the exchange charge for US Dollar. The exchange charge is 0.015504 per INR 1 that is 1.55% ( 0.015504*100).
(info source x-rates.com)
#2. Payment Dishonour Fee
A payment dishonor fee is charged by the bank when the payment on the credit card has been dishonored. A payment can be dishonored for any reason like cheque bounce or automatic payment out of bank account is blocked for insufficient funds.
The bank charged a fee of 2% of amount dishonored subject to the minimum amount of payment dishonored. The minimum charges vary from bank to bank. For example, HDFC charges a minimum of INR 450 and SBI charge a minimum fee of INR 350.
How to Avoid Payment Dishonour Fee
- Every time you make payment on your credit card make sure you have sufficient balance in your bank account. Either you make payment through cheque or by clicking than ‘Pay Bill’ button.
#3. Cash Payment Fee
Cash payment fee or cash transaction fee is charged on the cash payment of your credit card bills. When you pay your credit card bills on the bank counter in cash, banks charge a fixed fee of INR 100 on this.
Even some banks charge the same fee on the cheque payment for credit cards.
How to Avoid Cash Payment Fee
- Net banking is the most convenient way to pay your credit card bills. You will not need to pay any fees on the net banking payment.
#4. Balance Transfer Fee
Banks allow the balance transfer facility. Under this, you can transfer your credit outstanding with the current credit card to a new card. This clears the all the debt with the previous card.
You can transfer the balance only to other banks. For example, currently you have a credit card outstanding with the HDFC bank, you can transfer the credit to any other bank (which allows) but not to the HDFC’s new credit card.
The offeror bank charge a balance transfer fee for processing the transfer. Usually, the transfer fee is near about 2% (may vary a little bit with different banks).
How to Avoid Balance Transfer Fee
- Pay your credit outstanding amount with the current credit card.
This option is beneficial in the case if you have no source of paying your credit bills, due to which you have to bear high finance charges.
#5. Railway Ticket Booking Fee
As railway is a non-profit organization, the transaction charges have to bear by the cardholder. Whether you book your ticket online or purchase on the counter, you have to pay the transaction charges.
When you make the counter payment, you have to pay a fee of INR 30 + 2.5% of the transaction amount. In case of ticket booking on the irctc.co.in, a fee of 1.8% is charged.
How to Avoid Railway Ticket Purchase Fee
- Make cash counter payment for ticket purchase is the simplest and the best way to avoid railway ticket purchase fee.
- SBI IRCTC credit card is the second option. IRCTC credit card allows railway transaction fee waiver along with other benefits on ticket booking on irctc.co.in
You may also like to read Best credit card in India
#6. Cash Advance Fee
You can withdraw the cash from the ATMs through your credit card. But this benefit proves very costly. Every time, you withdraw the money through the ATM, you have to pay a transaction fee of 2.5% with a minimum fee of INR 300.
The charges are not stopped here. Over and above the transaction fee you have to pay an interest on the cash withdrawal right from the first day till the payment. There is no grace period for the cash advance.
How to Avoid Cash Advance Fee on credit cards
- The best & only option to avoid the cash advance fee is not to withdraw from ATM through credit card. Make ATM withdrawal only through the debit card.
- The trick for need small amount of money. After demonetization Paytm is accepting almost everywhere. You can upload the money into Paytm through your credit card and make the payment.
#7. Annual Fee & Renewal Fee
An annual fee is the first fee charged by the banks on its credit cards. In the first year, it is charged with joining fee & from the second year onwards you have to pay in the form of a renewal fee.
An annual fee can vary on the basis of the type of the credit card like a silver card, Gold card, Platinum card or Titanium Card. Better the features more the annual fee charged by the banks.
The annual fee or renewal fee can be avoided only at the time of selection of the credit card.
This can be done in the following ways
- Every bank offers some basic credit cards having no annual fee. You can opt these cards. But these cards offer the least benefits.
- Check the annual fee waiver clause. Many premium credit cards like HDFC Regalia offer annual fee waiver benefit on crossing a mark of annual spends. Choose a credit card after comparing your expected annual spend with the fee waiver clause limit.
- If you selected a credit card has an annual fee without having annual fee waiver clause, ask the customer care before the renewal of the card. If you are a valuable customer to the bank, they can waive the annual fee. This is must be trying trick if you already pay an annual fee.
#8. Over the Limit Charges
An over the limit fee is charged when the total credit card bills increased the credit limit. For example, you have a credit limit of INR 80,000 but you’re total outstanding reached INR 1,00,000. In this case, you have to pay the over-limit charges.
Over the limit, a fee is charged @ 2.5% of over the limit subject to the minimum of INR 500.
How to Avoid Over Limit Fee
- In case your spends exceed your credit limit, you should either request for credit limit increase or apply for the second card. In fact, I write an article on tips to increase the credit limit. You would surely get some tips that you wouldn’t know.
#9. Interest Rate (finance charges)
Interest Rate is a penalty imposed by the banks for not paying the credit bills on time. This is charged on the outstanding amount on your credit card.
Banks charge a huge interest rate varying between 36% to 48% p.a. Paying finance charges on your credit bill will be soaked out all the benefits of the credit card. In fact, it would costs you more than any loan.
It’s better to avoid credit cards instead of regular paying finance charges.
How to Avoid the Finance Charges
- The only way to avoid the finance charges is, pay the credit bills on time, there is no other way to avoid this. If you want to improve your CIBIL Score, pay the outstanding at least 5 days before the due date. You can also read a complete guide to check your CIBIL score.
#10. Late Payment Fee
Late payment fee is charged if the minimum due amount is not paid by the payment due date. This is charged above and over the finance charges.
Generally, the minimum due amount rate is 5% of the credit bill having a minimum limit between INR 500 – INR 1000. In case you don’t pay this minimum due amount, you have to pay late payment fee.
Have a look on SBI late payment fee
How to Avoid Late Payment Fee
- Pay the minimum due amount before the due date. But even after paying the minimum due amount, that 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 the minimum of INR 10 along with service tax & other taxes.
Many credit cards offer fuel surcharge waiver. In this, firstly you have to pay the fuel surcharge and later on only the surcharge amount is credited to your credit amount except the paid taxes.
How to Avoid Fuel Surcharge
- Make cash payment for the fuel purchase. Fuel purchase through credit is only beneficial in case of additional benefit over the fuel surcharge waiver.
Additional tax burden on fees (GST)
On Above mentioned charges & fee you have to pay an additional applicable taxes in the form of GST. This puts an additional pressure on your pocket. Have a look on the rates
From 1 July 2017 under GST, you have to pay GST @ 18% (formerly it was 14%) over & above fees & charges. For example, you have to pay INR 2000 as total fees on your credit card.
GST – INR 360 (18%)
Total Fees – 2360 (2000+360)
How to Avoid Applicable Taxes
- The only way to avoid taxes is to avoid the fees. Neither you have to pay any fees nor any tax on that.
More wisely you use your credit card, more you get the benefits. Careless usage trapped you in a trap of different fees & charges. Did you find this article helpful to you? Let me know in the comments.