If you are planning to apply for your first credit card, then here is a checklist for what you should look out for before you finalize.
1. What is Annual Percentage rate?
Annual Percentage Rate (APR) is the interest on the dues of your credit card bill. Credit Card interest rates are highest as compared to other loans. The unpai d due attracts interest in the rage of 23- 49%. Many times you are told the monthly rate of interest which looks like a low rate but its charged annually so you must always multiply it by 12. For instance, an SBI prime card takes a monthly interest of 3.35%, which annually comes up to 40.2%.
2. How is Interest applied on a credit card bill?
Interest on a credit card is applicable when you have an outstanding amount on your card. If you end up paying just the minimum due, then the rest of the amount which is due will be charged with interest. Some banks charge interest on the entire purchase price even after the minimum due amount payment. Interest is charged on a daily basis till you clear the outstanding balance. While carrying your previous balance if you make a new purchase then they will attract the interest from the first day onwards. That means you will not get an interest free credit period if there is outstanding on your card.
3) Will the Credit Card attract an Annual Maintenance Fee?
The annual maintenance fee is the cost that you pay for having a card. It is an annual charge on a credit card. You have to make a once a year payment. But many times a card is sold as a free card with no annual maintenance charge. The so-called free card comes with a caveat. It may so happen that for the first year there will be no charge and from 2nd year onwards you may have to empty your pockets. Few cards have a minimum expenditure cap rule on annual fee wherein if you utilize a certain amount of credit and then the yearly charge is waived. Get full clarity on this yearly charge. It differs from bank to bank and also the type of card you choose. It could cost you anything between Rs 500 to Rs 10,000
4) Types of Fees on a credit card
A credit card attracts additional fees in many instances.
(i) Late Payment fee -If you fail to pay the minimum due amount of your credit card, then there is a late payment fee which you are liable to pay. Depending upon the due amount this fee is taken.
(ii) Cash withdrawal fee
Never use your credit card as ATM card to withdraw money. If you do withdraw then be ready for a cash withdrawal fee. It would 2.5% of the withdrawn amount. But there is more to this. Apart from the 2.5% of interest remember cash withdrawal does not get any interest free credit period so the charge is imposed from day one till the time you payback.
(iii) Over limit fee
This fee is charged when you cross your credit limit sanctioned on your card. Crossing the credit limit invites a price which could be 2.5% of the amount that you have spent or a flat rate decided by the bank based on your credit limit.
(iv) Foreign Currency Mark Up fee
Overseas transactions come with a mark-up fee. Credit card users have to pay around 1.99-3.55% as an additional levy on purchase in foreign currency. This fee varies from bank to bank and also depends upon the type of card that you have. For instance, HDFC Regalia credit card charges a foreign currency mark-up fee of 2% of the transaction value, whereas HDFC Time Platinum card charges a 3.5% mark-up fee.
5) Tax on Credit Card
Apart from interest, charges and fee do not forget that all the credit card transaction is levied a GST at the rate of 18%.
